EUU, Alm.del - 2018-19 (1. samling) - Bilag 78: Rapport fra Den Europæiske Revisionsret oktober 2018

Europaudvalget 2018-19 (1. samling)
EUU Alm.del Bilag 78
Offentligt

SPECIAL THEME

ORESIGHT

EXPLORING POSSIBLE

FUTURES FOR BETTER

DECISIONS TODAY

Journal

“

What is critical here is your mind-set

O C TO B E R 20 1 8

EUU, Alm.del - 2018-19 (1. samling) - Bilag 78: Rapport fra Den Europæiske Revisionsret oktober 2018

Table of contents

ECA JOURNAL LONG READ

By Stefanie Babst, Strategic Analysis

NUMBER 10

October 2018

Capability, NATO

Strategic foresight:

inspiring our thinking

about the (un) known

(un) knowns

INTERVIEW

Juhan Parts, ECA Member

Engaging in foresight: a must for the

ECA to be a global leader in public

auditing

EDITORIAL

It is not written in the stars – methods

used by foresight professionals

By Angela Wilkinson, World Energy Council,

and Betty Sue Flowers, Emeritus Professor at

the University of Texas, Austin

ECA JOURNAL LONG READ

Strategic foresight: inspiring our

thinking about the (un) known (un)

knowns

By Stefanie Babst, Strategic Analysis Capability,

NATO

‘No Crystal Ball’

Interview with Interview with Lars Brozus,

German Institute for International and

Security Affairs (SWP)

By Candida Splett, German Institute

of International and Security Aﬀairs

16 Scenario mapping: helping regulators

to imagine possible futures

By Paul Moxey, Professor at London South

Bank University and with SAMI Consulting, and

Gill Ringland, SAMI Consulting

19 Using strategic foresight to navigate

digital transformation

By Duncan Cass-Beggs, Organisation for

Economic Cooperation and Development

22 Engaging in foresight: a must for the

ECA to be a global leader in public

auditing

Interview with Juhan Parts, ECA Member

By Gaston Moonen, Directorate of the

Presidency

Task Force charts foresight territory

for the ECA

By Andreas Bolkart, Directorate of the

Presidency, ECA

The 2018 ECA seminar: all about

making the ECA ‘future proof

By Barbara Auer, Directorate of the Presidency

Work on Long-term Trends and

Uncertainties at the IMF

By Alberto Behar and Kristina Kostial both with

the International Monetary Fund, and Professor

Rafael Ramirez , University of Oxford, and with

Normann Partners

The European Political Strategy

Centre’s Experience with Strategic

Foresight: safe-spaces, networks and

walking-the-talk

By Ricardo Borges de Castro, European

Political Strategy Centre, European Commission

How foresight helps parliamentary

work: the European Parliament’s

experience

By Danièle Réchard-Spence, European

Parliamentary Research Service

The future of Europe:

a collection of opportunities

Presentation by and interview with Klaus

Welle, Secretary-General of the European

Parliament

By Derek Meijers and Gaston Moonen,

Directorate of the Presidency

Designing a new audit manifesto –

the ICAEW AuditFutures programme

By Martin Martinoﬀ, Institute of Chartered

Accountants in England and Wales

Digital transformation – where

private audit firms stand

By Brice Lecoustey, Ernst & Young Business

Advisory Services

Assessing future readiness: how

a private audit contributes to

addressing foresight

By Karl Braun, KPMG Germany, and Assoc. Prof.

Dr. Heiko von der Gracht, KPMG Germany

Moving from hindsight to insight and

beyond: how the Commission’s IAS

embraces foresight

By Manfred Kraff, Internal Audit Service of the

European Commission

Strategic Foresight at the U.S.

Government Accountability Office

By Stephen J. Sanford, U. S. Government

Accountability Oﬃce

EUU, Alm.del - 2018-19 (1. samling) - Bilag 78: Rapport fra Den Europæiske Revisionsret oktober 2018

PRODUCTION

Editor in chief:

Gaston Moonen

Tel.: +352 4398 - 45716

E-mail:

[email protected]

Strategic Foresight at the U.S.

Government Accountability Office

By Stephen J. Sanford, U. S. Government

Accountability Office

Deputy editor:

Derek Meijers

E-mail:

[email protected]

Layout, distribution:

Directorate of the Presidency

Photos:

Reproduction prohibited

Reproduction is authorised

provided the source is

acknowledged

The contents

of the interviews and the articles

are the sole responsibility

of the interviewees and authors

and do not necessarily

reﬂect the opinion of the

European Court of Auditors

Unless indicated otherwise,

all pictures and graphical visuals

originate from the ECA

FOR MORE INFORMATION:

European Court of Auditors

12, rue Alcide De Gasperi

1615 Luxembourg,

LUXEMBOURG

[email protected]

Past editions of the Journal

can be found on ECA’s website:

eca.europa.eu/en/Pages/Journal.aspx

European Parliament

The future of Europe:

a collection of opportunities

Presentation by and interview with Klaus Welle,

Secretary-General of the European Parliament

By Derek Meijers and Gaston Moonen,

Directorate of the Presidency

European Council

Council of the European Union

The ECA's future institutional

positioning: conditions and

options

By Matthias Rossi, Professor at Augsburg

University

How foresight is used by auditors:

some first-hand insights from the

National Audit Office of Finland

By Jenni Leppälahti, National Audit Oﬃce

of Finland

The ECA's future institutional

positioning: conditions and options

By Matthias Rossi, Professor at Augsburg

University

DIRECTOR'S CUT

Technology will be everything, also

for the ECA

Interview with Magdalena Cordero,

Director Information, Workplace and

Innovation directorate

By Gaston Moonen, Directorate of the

Presidency

From foresight to audit selection:

examples at the ECA

By Matteo Tartaggia, Sustainable Use of

Natural Resources Directorate

Peer learning on foresight: experts

meet at the OECD

By Gaston Moonen, Directorate of the

Presidency

REACHING OUT

2018 ECA Award for Research into

Public Sector Auditing 2018: a tribute

to former ECA President Jan O.

Karlsson

By Roberto Gabella Carena, Directorate of the

Presidency, and Gilberto Moggia, information,

Workplace and Innovation Directorate

Drawing attention to the ECA’s

‘flagship’ product: the annual report

By Vincent Bourgeais, Directorate of the

Presidency

ECA congratulates Kosovo’s National

Audit Office on its 15th anniversary

By Mindaugas Pakštys, Private Oﬃce of

Rimantas Šadžius, ECA Member

Reinforcing cooperation in the

common interest: the European

Parliamentary Research Service

visits the ECA

By Helena Piron Mäki-Korvela,

Directorate of the Presidency

Austrian presidency of the Council:

Federal Minister Josef Moser visits

the ECA

By Arjen Lok, Private Oﬃce of Lazaros S.

Lazarou, ECA Membe

FOCUS

ECA

Publications in

October 2018

NEXT EDITION

eca.europa.eu

@EUauditors

EUU, Alm.del - 2018-19 (1. samling) - Bilag 78: Rapport fra Den Europæiske Revisionsret oktober 2018

Editorial

What if…? Audit and the future(s)

A few days ago, I heard the following radio ad: ‘Contact us so we can solve your problems

through our audit intelligence robot.’ It turns out that audit firms in the private sector

now use audit robots to examine process and transaction flows, including auto-learning

capacities. I knew this was happening, but what surprised me from the radio ad was how

mainstreamed it already is for audit firms. Audit work being done by robots is a scenario

three colleagues and I identified about three years ago, based on the feedback we received

through an internal survey we had organised about imagining the future of the ECA in

2040. The big difference is that most respondents thought it would happen in a decade or

so. As technology moves on, can people keep up? Or better, can we stay ahead?

Auditors are specialised in looking at facts, which many of us relate to the past tense.

In doing so, auditors- and certainly auditors in the public sector - try to contribute

usefully to future decisions, both for accountability reasons and for the sake of a learning

government. As important as facts from the past are, so are changes in the future, whether

presented as risks or as opportunities. As hypothetical these changes may be, being

prepared to cope with them as individual, company, government or society will make you

better off. Not being prepared will quickly push you into crisis management. While the

essence of politics is to imagine what the desired future might be, the underlying thought

is that we can create our future instead of being subject to it.

Foresight – exploring information on possible developments and their potential impact - is

not as far away from audit as people may think. In financial audit, some form of foresight

is embedded in the accruals accounting system. Future liabilities and returns need to be

accounted for, and it is the auditor’s role to examine how well this is done. In a rapidly

changing environment, insights into future scenarios that quickly change these liabilities

become more and more important. Audit firms approving the accounts of companies

which go bust a month later may otherwise face liabilities themselves.

Performance audits often look at future risks, such as the sustainability of the programmes

implemented or envisaged, and their impact, whether realised or foreseen. This provides

insights which can easily be related to foresight, as for example can be seen in the

challenges the ECA formulated in its landscape review on climate change. How quickly

these challenges become real, and even may turn into concrete liabilities, is shown by a

recent court ruling holding government accountable for not acting on foreseen climate

changes. Foresight, in this case with climate change scenariosinvolving impact predictions

and possible remedies, becomes a more and more powerful tool. Otherwise even financial

liabilities might be looming, to be reflected in…the accrual-based accounts.

Within the ECA, the discussion about the relationship between audit and foresight, and

how better to link the two, is ongoing. It was the main topic of the annual seminar of the

ECA leadership last September. In view of this discussion, we have made foresight the main

theme of this Journal, to provide more information about foresight as expertise and to

show the possible links between audit and foresight. We have a range of articles providing

insight on what other organisations, be it EU institutions or international organisations, do

to be more future proof. We look at what foresight entails for auditors in the private sector

and other supreme audit institutions and we conclude with some perspectives on what

foresight can imply for the ECA.

There seems little doubt that technology will change the way we conduct our audits in

the future. One only has to look back twenty or even ten years to realise that. And the

expectation is that the digital transformation will only speed up this process. Will the

ECA be a leader in using this technology? Even more interesting is the question how this

transformation will affect the activities of the ECA. How will the ECA remain relevant and

provide the best possible information – be it based on hindsight, insight or foresight? How

will public auditors help policy makers and decision makers to steer the future, instead of

reacting to it?

Gaston Moonen

EUU, Alm.del - 2018-19 (1. samling) - Bilag 78: Rapport fra Den Europæiske Revisionsret oktober 2018

It is not written in the stars – methods used by

foresight professionals

By Angela Wilkinson, World Energy

Council, and Betty Sue Flowers, Emeritus

Professor at the University of Texas, Austin

Forecasting the future is a skill that humans have been trying to develop since the

beginning of time. However, even with modern quantitative approaches, forecasting a

single future can prove fatal. By working with foresight in relation to alternative futures,

leaders are engaging with uncertainty as an opportunity. Angela Wilkinson, Senior

Director with the World Energy Council, and Betty Sue Flowers, Emeritus Professor at

the University of Texas, focus on some core elements that foresight professionals of

today use to generate insights about possible futures.

Forecasting: building on the past

The most important responsibility of the leader of any organization is to think about the

future and to design ways that the organization can thrive within it. From that perspective,

every leader is in the business of foresight – usually with the help of professionals. In the

ancient past, these professionals

did

use crystal balls, or the entrails of sacrificed animals, or

the patterns of stars to predict the future. In modern times, professionals are more likely to

extrapolate the trends of the recent past into the future and give the leader or CEO a more or

less useful

forecast.

Quantative forecasting

is still the most common method of predicting a single, most likely

future, even though it can produce dangerous and deeply flawed results. The danger comes

from the complacency that forecasts generate, based as they are on the assumption that the

future will be like the past. The only thing we know with any certainty about the future is

that whatever it will be, it will

not

be like the past. In other words, the future is uncertain, and

uncertainty creates anxiety. Forecasting alleviates anxiety in that it is an organized, data-rich

way to go wrong with confidence.

Forecasting has other advantages as well. It reduces uncertainty into quantifiable and

manageable risk. In addition, it’s linear, and human brains are hard-wired for linear thinking.

This linearity makes it a natural fit for working with cost-benefit analysis. Assuming that the

future will be like the past in predictable ways also avoids a challenge to the status quo,

which is usually more comfortable for the powers-that-be as well as their corporate partners,

who, like all of us, prefer to avoid thinking about the possibility of unpleasant surprises.

Foresight: capability towards a flexible and creative future orientation

Foresight, which is

not

the same as forecasting, requires the building of new organizational

capabilities. While forecasting can be valuable, especially in the short term, foresight

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It is not written in the stars – methods used by foresight professionals

continued

professionals know that what organizations need is not simply a crystal-ball

vision of the future, but the

organizational capacity

for engaging in a process

of social learning that leads to a flexible and creative orientation to the future.

Such an engagement with the future takes a number of forms, but four of

them, in addition to forecasting, are of greatest use:

Source: European Commission

Megatrend identification;

Horizon scanning;

Scenario building;

Visioning with back-casting.

Megatrend identification: new pattenrsn with unfamiliar impacts

Megatrend identification

helps loosen up forecasting to include combinations

of different trends that might interact in new ways to produce new patterns

with unfamiliar impacts. Imagining possible pattern shifts can also disconnect

leaders from the habit of looking at forecasts as isolated linear trajectories.

Of course, megatrends cannot provide the assurance of the numbers that can be attached

to single-trend forecasts. Instead, leaders have to develop the capacity to see possible larger

systems at play, some of which might include elements that seem to have no direct bearing

on the future of a particular organization, but have a very significant impact when combined

with other trends. Using megatrends, leaders and their organizations can, working with

qualitative futures narratives, to start to 'think outside the box' of the expected, forecastable

future by asking 'What if (the pattern shifts)? So what? (How, when, and with what impacts?)

What does it mean for us? What now? (What options for action and with what impacts?)

What does it mean for us? What now? (What options for action?)'

Horizon scanning: signaling potential trends and trend breaks

Horizon scanning

resembles the identification of megatrends – but in reverse. Megatrends

are important trends arising from the present, which are likely to affect the future; horizon

scanning looks at weak signals ‘coming from’ the future rather than the past or present to

see trends that are starting to bend or break and what new trends might emerge. Dialogues

about outlying technologies or nascent political or social movements can be stimulating

in themselves, but horizon scanning is of limited usefulness unless it is linked to other

processes, such as scenario building.

Scenario building: using plausible futures to engage uncertainty as opportunity

Scenario building,

like forecasting, creates fictions about the future, but these stories differ

from forecasts in three very important ways. First, while scenarios must be plausible to

be useful, and while they often employ data-based research for their content, they are

not extrapolations of present trends. Many times, in fact, they challenge those trends,

introducing ‘bends’ in the trends designed to challenge forecasts in useful ways.

Second, they always come in sets, usually of two to four. A scenario is not a picture of ’the’

future but is presented as one of several different possible futures. If each scenario in a set

of scenarios is equally plausible, then the leaders for whom the scenarios have been created

cannot choose a future to believe in, but must act as if any of them might come true – or

any of a number of other futures. The practice of testing strategy within the different futures

presented by the scenarios trains the minds of leaders to treat the future as a necessary

fiction rather than as a prediction.

Third, the key purpose of a scenario set is the creation not of the stories in themselves, but

of a platform for rich and wide-ranging dialogue that will bring assumptions to the surface.

Scenarios are designed to encourage constructive engagement with uncertainty in order to

avoid missed opportunities and blind spots. Such dialogues can lead to a shared sense of a

desirable future that a team wishes to move towards, even in the face of this uncertainty.

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It is not written in the stars – methods used by foresight professionals

continued

Among the many subtle by-products of engaging with scenarios is a greater sense of

confidence in relation to an uncertain future. This confidence is quite different from the feeling

of security that arises from accepting a single predicted future as ‘true.’ It is related, instead,

to the capacity for agility and resilience – getting ahead of connected challenges through

imagining different potential paths.

One of the most profound uses of scenarios is as a stage for dialogue on extremely complex,

contentious issues. Where there is deep disagreement, a wide-ranging, open, and honest

discussion is almost impossible under normal circumstances. Champions of one side or

another must consistently argue their strongest position, for example, and often it is politically

dangerous to step into the shoes of an opponent to explore how the issue might appear from

another point of view. In most such politically charged situations, discussions quickly become

arguments; or, if the atmosphere is congenial, the ‘elephants in the room’ are politely ignored.

In such a situation, a team comprised of people from many different perspectives can create

scenarios together even when they cannot agree on policy positions. After all, scenarios are

only stories. Any team member can create a story from another point of view. Often, in the

process of creating that story, those who hold an opposing position begin to understand the

other point of view and to see possible opportunities for collaboration. A different kind of

listening occurs, and often, a shared understanding emerges.

Ideally, scenarios are created by a team that represents the whole of the organization. From this

divergence of viewpoints sometimes a vision of a preferred future arises – and then foresight

actually leads to a design for the future rather than simply a reactive attempt to predict it. Once

a vision has emerged, a pathway from the future can be built back to the present.

Visioning with back-casting: not prediction, but aspiration to implement imagination

Visioning with back-casting

can translate a symbolic picture of the future into a rational strategy

and functional plan with actionable milestones and budgets.

Creating such a vision and stress-testing it against different future contexts (scenarios) that

would include the results of forecasts and megatrend analyses would require the use of all

these methodologies. An inspiring and actionable vision of the future is, after all, what leaders

need to give us. In effect, it is the leaders who show us the picture of the future in the crystal

ball – not as a prediction but as a powerful aspiration. The future is not for seeing, but for

creating.

Towards a futures-centric auditing profession?

Auditing

is a retrospective activity – looking back to assess whether financial aspects of decision

making by leaders and organizations have followed the agreed rules of accounting and, if

relevant, cost-benefit analysis. Auditors engage with the push of the past but, as yet, are not

equipped to work with the pull of the future.

What social need and purpose would a futures-centric auditing profession serve? Would the

emphasis be on demonstrating social benefits of economic efficiency and/or anticipating

the return-of-investment in terms of human-centric wellbeing and social flourishing? Such

a shift would also require a new leadership culture, not just a change of tools. Building

an organizational futures muscle – that is, a strategic foresight capability – would involve

grappling with the quality of imagination and social learning processes involving inter-

subjective judgements, rather than relying on the numbers alone to speak the truth.

an organizational futures muscle – that is, a strategic foresight capability – would involve

grappling with the quality of imagination and social learning processes involving inter-

subjective judgements, rather than relying on the numbers alone to speak the truth.

EUU, Alm.del - 2018-19 (1. samling) - Bilag 78: Rapport fra Den Europæiske Revisionsret oktober 2018

ECA Journal Long Read

Strategic foresight: inspiring our thinking

about the (un) known (un) knowns

By Stefanie Babst, Strategic Analysis Capability, NATO

If there is one area where strategic thinking

and scenario planning has a long historical

record, it is most likely in the military. This

is certainly so for the North Atlantic Treat

Organisation (NATO) where detecting trends,

anticipating possible future developments and

‘looking out of the window’ are seen as crucial

for defence and security decisions. Dr. Stefanie

Babst, Head of the Strategic Analysis Capability

for the Secretary General and the chairman

of the Military Committee at NATO, presents

in this article

her views on why it makes

sense to engage in foresight, and also various

conceptual aspects of such activity.

Source: pixabay

Strategic foresight is in vogue. In the past few years private foresight companies and

consultancies have mushroomed across the globe, offering their services and products

to businesses, governments, international organizations and individuals; in short,

to all those who seek to obtain

insights and analyses about future

ECA Journal short read

geostrategic developments and

potential risks. National governments

Increased strategic foresight resources and structures

Both public and private

organisations engage more in future challenges and risks. The continuously

and international organizations have

globalized world and technological development contributes to this interest.

perhaps taken a little longer than

private corporations to discover the

Domino effects and hard to predict unknows

The complexity of today’s world

advantages of strategic foresight

reinforces the need to reassess the so-called ‘butterfly effect’ which stipulates the

but many of them have accelerated

way in which small causes can have very large effect in complex systems. Equally,

their efforts recently. Most European

countries as well as the United States

there are unknown threats and challenges that cannot be measured beforehand

by strategic and systematic human thinking. In addition, human beings have

and Canada have started to invest

cognitive biases leading to blind spots for emerging issues.

in strategic foresight resources

and structures. In many European

Multiple futures

Understanding the past does not necessarily bring forward

capitals, dedicated foresight teams

useful future strategies. Foresight mechanisms can offer a way of engaging in

and tools have been created in order

the unknown challenges and risks and sharpen our eyes, with the aid of scenario

to complement traditional policy

planning, about multiple futures and provide inspiration.

planning and intelligence gathering.

In Brussels, the center of the

Optimising strategic foresight

If organised in an interdisciplinary and inclusive

European institutions, the strategic

manner and taken up at policy-making level, strategic foresight may provide a

foresight vocabulary has entered

useful mind-set and method for decision-makers ‘to look out of the window’ with a

the language of policy-makers and

fresh pair of eyes.

bureaucrats alike.

* The views expressed in this article are those of the author and do not represent any official NATO position. This

article was also published on the website of the Munich Security Conference, held from 16-18 February 2018.

See

https://www.securityconference.de/.../natos-strategic-foresight-navigating-between-bla...

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Strategic foresight: inspiring our thinking about the (un) known (un) knowns

continued

Complicated is not complex

The reason for the growing interest in strategic foresight is obvious: in our

increasingly globalized world, decision-makers want to guard against the

many strategic surprises out there. Arguably, comprehending the complex

realities of today's world is hard enough, yet trying to grasp the future seems

even harder. Stephen Hawking, the British theoretical physicist, once (2000)

said that the 21st century will be the century of complexity and he was right.

It is mostly due to profound technological advances in the past few decades,

particularly in the areas of telecommunications, the internet and more

lately block chain technologies and artificial intelligence, that our world has

become deeply interconnected and complex. Indeed, one could argue that

we are now at the beginning of what may become the most dramatic change

in the international order in several centuries, the biggest shifts since a group

of European rulers signed the Westphalian Peace Treaty in 1648 and thus

created an entirely new concept of sovereign states.

‘Look out of the window!’

The profound and fast changes we are witnessing every day illustrate that

complex is different from complicated. For a layman, the inner workings

of a battle tank may look like a highly complex thing but in reality, they

only reflect a complicated process. Complicated systems, in principle,

follow Newtonian characteristics in that they perform predetermined and

repeatable functions. By contrast, a complex system contains a large number

of autonomous elements that constantly interact with each other in non-

linear ways. Complex-system scientists - when asked ‘What is a complex

system?’- usually just reply ‘Look out of the window!’ Clouds, mountains,

rivers, the entire landscape of our world are expressions of what results

from unpredictable interactions. Changes in complex systems – whether

ecosystems, stock markets or human-centric domains like cities or states –

can sometimes take place not in a smooth progression but in a sequence of

fast catastrophic events.

Butterfly effects

The US mathematician and meteorologist Edward Lorenz, a pioneer of the

chaos theory, coined the famous term ‘Butterfly effect’ for describing the

way in which small causes can have very large effects in complex systems

such as the weather. In the same vein, Per Bak, the well-known Danish

theoretical physicist, reminded us that the domino effect in complex

systems can sometimes have catastrophic effects: ‘Cracks in the earth's

crust propagate this way to produce earthquakes, often with tremendous

energies.’ Translated to our political world of today, we seem to be faced with

exactly this: propagating effects and surprising energy. Radical change in one

area produces radical change elsewhere. The days of simple interactions and

easy-to-map dynamics lie definitely behind us. It is the complexity of change

and its unpredictable outcomes that pose a genuine challenge for decision-

makers.

Source: Pixabay

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Strategic foresight: inspiring our thinking about the (un) known (un) knowns

continued

Black Swans or Unknown Unknowns

What governments fear most are strategic surprises or so-called Black Swans,

a category of futures that the philosopher and statistician Nicolas Nassem

Taleb (2007) described as ‘rare, hard-to-predict developments that have

a large, game-changing impact’ on peoples, national interests, policies,

processes and many more areas alike. In 2002, not long after the terrorist

attacks of 9/11, the former U.S. Defense Secretary Donald Rumsfeld referred

to Black Swans as ‘unknown unknowns’: ‘There are known knowns. These are

things we know we know. We also know there are known unknowns. That is

to say there are some things we do not know. But there are also unknown

unknowns, the ones we don't know we don't know.’ This well-known phrase is

often quoted in a satirical way but it contains a large kernel of truth.

In the past few decades, the world has had to cope with some Black Swans

or unknown unknowns; for example, the Asian financial crisis in 1997/98;

the global economic and financial crisis caused by the sudden collapse of

Lehman Brothers in 2008/09; the Arab Spring in 2010; the Fukushima nuclear

disaster in March 2011 and, of course, the 9/11 terrorist attacks on the United

States. They not only caused major disruption but had large, far-reaching

repercussions on numerous states, their policies, concrete actions and

ultimately a huge number of people.

Blind spots

It is our own human nature that hampers our efforts to think about the

future more systematically, with a long-term, open-minded view. Indeed,

all human beings – including those in power positions – are afflicted with

cognitive biases or, simply put, blind spots. Many of the past and current

crises, political upheavals, natural disasters or pandemics do not fall into the

category of Black Swans. We could have guarded against some of them or at

least mitigated their effects if decisions makers had been prepared to read

the signals announcing these events correctly and if they had spent sufficient

time and effort to prepare for contingencies. But allowing our blind spots to

dominate our thinking and focusing on immediate issues rather than long-

term strategies is not only a tempting choice for policy-makers across the

board - it is also an expression of a deeply engrained human attitude.

Hindsight is not foresight

But even if decision-makers in governments were to become more conscious

of their respective cognitive biases and developed a fresh way of thinking,

detecting plausible signals that point at future strategic surprises remains

an extremely difficult exercise. For one, it is much more demanding than

explaining, in hindsight, why certain events unfolded as they did. True, an

entire industry of scientists, academics, analysts and commentators are busy

offering reasons why the Russian leadership decided to annex the Crimean

peninsula in spring 2014 or why in 2016 a majority of British voters opted for

their country to leave the European Union. While it is obviously important to

make sense of past strategic surprises, these are, in essence, all ‘post-mortem’

analyses. Their thinking and explanation is fundamentally backward-looking.

Yet, providing hindsight of past events – regardless how useful such an

exercise is – does not necessarily translate into foresight. Simply because

we can provide an explanation for, let's say, why the current state of affairs

between Russia and the West has evolved in a certain way, does not mean we

are in a position to forecast the next political drama or catastrophe.

Source: Pixabay

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Strategic foresight: inspiring our thinking about the (un) known (un) knowns

continued

Black Elephants

Sometimes our preparedness to take long views on future trends and events

is challenged by another member of the animal kingdom, the Black Elephant.

Singapore's Peter Ho, one of the intellectual fathers of strategic foresight, has called

a Black Elephant the ‘evil spawn of our cognitive biases.’ It is a cross between a Black

Swan and the proverbial Elephant in the Room: a problem that is actually visible to

everyone but no one wants to deal with it. When it blows up as a serious problem,

a widespread reaction is that of shock and surprise, whereas, in reality, it should not

have come as a surprise.

Was the migration crisis that hit Europe reportedly ‘out-of–the-blue' in 2016 a Black

Elephant? I suppose so. The pull and push factors that drove a dramatically growing

number of refugees and migrants from the conflict zones in Syria, Iraq and North

Africa towards Europe were known for some time; so was the demographic data as

well as the nexus between organized crime and human trafficking; and still many

European governments pretended that the arrival of hundreds of thousands of

people on their doorsteps came as an utter surprise to them.

There are other examples illustrating that most of the recent strategic shocks were

in fact rather known unknowns or Black Elephants. For example, Russia's arrival

in the Syrian conflict zone in autumn 2015 or North Korea's reinvigorated desire

to challenge the international community's resolve with missile tests could be

categorized under this heading.

Strategic Foresight is not about predicting the future

Can strategic foresight make a difference? The cautious answer is yes, perhaps.

Strategic foresight or futures thinking can be a useful way for governments and

international organizations to better understand global complexity and prepare

against Black Swans or Black Elephants. For sure, strategic foresight is not about

predicting the future. Nobody can predict what precisely the year(s) to come

will bring. But understanding key global and regional trends, detecting critical

uncertainties and risk factors and developing scenarios about potential future

developments makes a lot of sense if one wants to avoid nasty surprises.

For strategic foresight to be successfully embraced both as an anticipatory mindset

and a method, we must accept that we will have to continue to live with a high

degree of uncertainty now and in the future. For some politicians, this may sound

banal; in the eyes of others, such a statement is antithetical to what they aim to make

voters believe, namely that they have a firm and clear view of what the future holds.

Strategic foresight methods, processes and products, however, are not meant to

explain the future in linear terms. By contrast, they can help to better understand the

complexities surrounding us; they can help challenge our own assumptions and make

us aware of our blind spots; they can help sharpen our eyes about multiple futures

and inspire our thinking about the unknown unknowns out there – but serious

strategic foresight analyses and scenarios will never seek to tell a group of policy-

makers that the future is straightforward and black or white.

Scenario planning and horizon scanning should be inclusive and

interdisciplinary exercises

Scenario planning exercises can be a meaningful way to make people aware of

uncertainties, risks and problems but also opportunities. Developed by the oil giant

Shell in the 1970s, scenario planning has become a globally acknowledged and

broadly used foresight tool. In countries such as Finland and Singapore, scenario

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Strategic foresight: inspiring our thinking about the (un) known (un) knowns

continued

planning exercises are held regularly on a national level and based on a whole-of-

government approach, i.e. all ministries and offices of the government are involved at

senior level. In Finland, not only the executive but also legislative branch participates

in scenario planning exercises. In both countries, scenario planning is part of the

national strategic planning process and thus taken seriously.

Horizon scanning is another, complementary foresight method. It is not meant to be a

description or analysis of the current state of affairs but rather an effort to distinguish

’noises from signals,’ to observe the unfolding of important, emerging trends and

to identify potential critical game-changers. Data mining tools can meaningfully

support horizon scanning exercises in that they help digest big data and search for

weak signals that could evolve into sudden shocks. Ultimately, however, they cannot

replace the sense-making process that is still the task of a person.

Finally, it should be highlighted that strategic foresight works best if organized in an

interdisciplinary and inclusive manner. If scenario planning, for instance, is purely

exercised by a small group of like-minded individuals that sit on the margin of the

policy-planning process and have no linkages to the other parts of the bureaucracy,

the impact will likely be very limited. Likewise, if strategic foresight products are not

shared at the policy-making level they do not have a great impact either. Ideally,

strategic foresight should help bring the various silos in a bureaucracy together in

order to generate a broad and diverse spectrum of individual assumptions, mental

maps and perspectives.

NATO's strategic foresight

So where is NATO in all of this? In recent years the transatlantic Alliance has

significantly upgraded its intelligence and crisis anticipation capabilities in order

to better guard against unpleasant surprises, risks and threats, regardless whether

they come from the East, the South, cyber space or through technological advances.

Among others, a joint civilian-military Strategic Analysis Capability (SAC) provides

NATO with strategic foresight analyses and scenarios about future developments of

strategic relevance for the Alliance. SAC regularly engages with external foresight

teams, regardless whether they sit in Allied capitals, NATO partner countries, the

private sector or other international organizations.

NATO's strategic foresight themes range from Russia's future course of action at home

and in NATO's eastern neighbourhood, to future scenarios for the conflict-ridden

Middle East and North Africa region, from the future evolution of the terrorist threat

to NATO's member countries to the many strategic unknowns that come with the

global rise of China, and from the question what the cyber threat may look like in five

plus years to the potential impact of new disruptive technologies. These and related

topics cannot come as a surprise to anyone since they are populating the pages of

numerous public outlooks and foresight reports. But geared towards NATO's needs

they constitute hard and substantial work.

After all, strategic foresight is primarily about encouraging everyone involved in a

decision-making process to ‘look out of the window’ with a fresh pair of eyes and try

to comprehend the dynamics that are driving our fast-changing global environment

with a new way of thinking. This is neither easy nor comfortable. But trying to grasp

how the nature of power, and those who yield it, will continue to alter in the years to

come, how future relations between states and citizens will change or future wars be

fought cannot possibly succeed if we still use the mental maps of the past. We may

not find all the answers to these and other questions but at least we should try to

pose them as smartly as possible.

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‘No Crystal Ball’

Interview with Lars Brozus,

German Institute for International

and Security Affairs (SWP)

By Candida Splett, German Institute

of International and Security Affairs

The editor of the SWP study 'While

We Were Planning', Lars Brozus,

speaks about the potential benefits of

scientifically grounded foresight.

The interview was conducted by

Candida Splett, online editor of SWP,

the German Institute of International

and Security Affairs.

Source: SWP

2019: Turkey leaves NATO and moves closer to Russia. A fundamental

challenge to the Alliance’s cohesion. Scenarios of that kind and their

potential consequences are the subject of your foresight study. What are the

concrete benefits of such an approach?

Scenario and foresight thinking can help us to prepare for unexpected

events. International politics has produced one surprise after another

in recent years: Brexit, Trump, Crimea, to name just three prominent

examples. And more surprises are bound to follow. So it is useful to

think through situations that are conceivable, such as a Saudi-Iranian

rapprochement or South Korea acquiring nuclear arms.

In the introduction to the study you call for expectation management. What

can political decision-makers expect from your foresight analysis? And what

should they not be looking for?

We have no crystal ball, we cannot predict the future. We need to make

that very clear to avoid disappointment. But we can help to sharpen

political sensibility about situations that can arise unexpectedly. That

“

* This article was also published on 13 September 2018 on the website of

Stiftung

Wissenschaft and Politik,

the German Institute for International and Security Affairs, see

https://www.swp-berlin.org/en/point-of-view/2018/no-crystal

... we cannot predict

the future. [...] But we

can help to sharpen

political sensibility about

situations that can arise

unexpectedly.

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Interview with Lars Brozus, German Institute for International and Security Affairs (SWP)

continued

does not just mean the developments discussed in our study. Instead we

need to emphasise the importance of maintaining awareness of other

potential developments and their consequences in order to be in a better

position to deal with the inevitable surprises.

You have already mentioned two important recent events that were almost

completely unanticipated: Brexit and the election of Donald Trump. Why?

In both cases most opinion polls suggested a different outcome. And

in both cases the result was very close. With Trump, about 90,000 votes

tipped the scale, which is well within the margin of error. It is very hard

to anticipate such a result. However, politicians could have been better

prepared, for example by thinking through the possible consequences

of an unlikely outcome. But to be honest researchers are also often taken

by surprise, just think of the Arab Spring. That is another reason why we

invest time and energy in scientifically grounded foresight.

How does politics need to change in order to predict and prepare for these

kinds of events?

It is important to regularly examine situations that could happen, even

if they appear unlikely. There are two objectives to this. One is to better

anticipate possible developments, the other to run through the very

concrete responses to unexpected events: Who takes part in the briefings,

what questions need to be discussed, and how should information be

communicated? Simulations and scenarios can assist that process. It

would certainly help if there were more incentives for this form of analysis

at the administrative level.

What distinguishes scientifically grounded foresight from forecasting?

A forecast involves a prediction of the timing and probability of a specific

event. Foresight concerns hypothetical developments. What might be

the consequences if the United States, China and Russia agreed to reform

the United Nations in line with their own interests? Or if the EU’s security

databases were systematically manipulated? We draw attention to events

that might occur and how they might develop. And we examine the best

available responses.

What criteria do you apply for selecting foresight contributions?

Three criteria are important: consistency, plausibility and relevance.

Consistency relates to the described situation: Is it coherent? Plausibility

refers to political context: Is this a conceivable situation? You need both

scientific expertise and creativity to do this convincingly. And then there

is relevance: The most interesting situations are those that would have

considerable impact on German and European foreign and security

policy, but are not currently at the centre of political attention.

Your study also includes two ‘foresight reviews,’ revisiting contributions

written in 2013. What is the purpose of this exercise?

The foresight review is a methodological innovation. The authors

review contributions prepared several years ago. They examine which

influencing factors were thought to be especially important at that

“

... to be honest

researchers are also often

taken by surprise, just

think of the Arab Spring.

It is important to regularly

examine situations that

could happen, even if they

appear unlikely.

“

( For foresight) Three

criteria are important:

consistency, plausibility

and relevance.

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Interview with Lars Brozus, German Institute for International and Security Affairs (SWP)

continued

time, and contrast these expectations with what has really happened.

This kind of self-reflection allows us to update our ideas about future

developments.

In the first foresight review the author reflects on her scenario of a

breakthrough in electricity storage revolutionising the energy sector. How has

that changed today?

What she did not anticipate in 2013 was the rapid decrease in the oil price

which discouraged investment in energy efficiency. That factor plays a

much larger role in her current contribution.

The second foresight review considers whether the Brexit negotiations

proceeded as the author expected in 2013. What are his conclusions?

Broadly speaking the negotiations have gone pretty much as expected

– and the author was writing three years before the 2016 referendum!

What he underestimated was the potential for conflict within the British

government and the political cohesion of the EU-27.

How can this insight improve future foresights?

Systematic scholarly self-reflection can sharpen our awareness of

important factors we might overlook or discount. So we are learning for

future foresights.

“

Systematic scholarly self-

reflection can sharpen our

awareness of important

factors we might overlook

or discount.

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Scenario mapping: helping regulators to

imagine possible futures

By Paul Moxey, Professor at London South Bank University and with SAMI Consulting, and

Gill Ringland, SAMI Consulting

Scenario planning to identify risks and opportunities

Within the public service,

mapping scenarios for the

future is most often used

by the executive branch, i.e.

those who govern. Paul Moxey

is Professor of Corporate

Governance at London South

Bank University and Fellow

with SAMI Consulting and as

auditor worked in both the

private and public sector. Gill

Ringland is Fellow Emeritus

with SAMI Consulting and she

has written several books on

scenarios in various fields of

activities. Below they present

a short case study on how this

works in practice. Their article

also argues that scenario

planning should be used

by auditors, helping them

to interact better with their

auditees.

Scenarios develop awareness and challenge current assumptions, beliefs

and paradigms. Scenarios can help anticipate risks and opportunities:

they are pictures of how the world might look in the future. Scenarios

are used extensively by regulators, such as the European Commission.

Similarly, EU Agencies such as Frontex (Border Control) and OSHA (Health

and Safety), apply these techniques to explore future risks.

Scenarios however are not forecasts. As

Figure 1

below Shows forecasts

are over precise. Scenarios are based on plausible ways the future might

evolve. Each scenario contains a set of different assumptions about how

the future may play out – but the actual future may well contain aspects

from more than one scenario! Looking at scenarios can therefore help

regulators to imagine possible futures in order to anticipate changed

government priorities.

Figure 1 Forecasts and Scenarios

(Source Gill Ringland and SAMI)

Forecasts are over-

precise

Scenarios

of the

Future

Range

Uncertainty

Timing ?

Today

Trends



Source: Gill Ringland and Sami

Foresight Case study: UK water supply

In one of our recent assignments, the UK water services regulator

(Ofwat) organised a (long) one day workshop with stakeholders to gain

new insights about water. Overall, 24 experts from across the industry,

consumer groups, government and other regulators participated. SAMI

Consulting was asked to assist in identifying the factors affecting the UK’s

use of water between 2016 and 2050; imagine how the water industry

might evolve; and hence how this may affect the role of the regulator.

During the workshop, participants identified two main questions which

will frame the possible future world of water supply:

will water supply, treatment and ownership be global/national

or local/individual?

will water be on the agenda (personal/community/national) or

not?

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Scenario mapping: helping regulators to imagine possible futures

continued

These questions defined the two axes of the scenarios we then developed (see

Figure 2

below).

Figure 2

(Source: Ofwat and SAMI)

Source: Ofwat and Sami

It is in particular the second question, which challenges current assumptions: public

water supply is currently not on the agenda since it is largely taken for granted. However,

this might not remain so if, for example, access were curtailed or the cost were to rise

significantly in the future. Conversely, the importance of water in many domestic and

industrial applications could reduce due to new technologies, e.g. biotechnological waste

treatment or waterless clothes washing. This would support the scenario that water supply

will not be on the agenda.

Given the long time horizon to 2050, it would be foolish to take anything as for granted. At

the same time, some variables – such as the impact of climate change and the growth of

new technology – will surely drive the use and supply of water. The effect of these variables

will however be different in each scenario.

Determining the big questions is always a matter of lively discussion within a workshop

group, while naming the scenarios is often a source of hilarity! The names should be such

that you can describe the world to your mother-in law and she says ‘Oh, I get it!’ In this

workshop, syndicates competed to provide a set of names –the syndicate which used

the names of Hollywood films won, and the four possible future worlds were as in the

figure. Taking the ‘Waterworld’ scenario (see Figure 2) as an example, we could imagine

newspaper headlines such as ‘Standpipes in Downing Street’ and ‘London faces third year

of drought.’

In this scenario, a key challenge would be to ensure the resilience of the water supply

infrastructure: innovative and adaptive companies would have an advantage at times of

volatile water markets, and traditional water companies might not be able to compete. A

major challenge in this scenario would be the cost of building a grid only to be needed at

times of regional shortage. Even if introduced just to make customer billing easier, remote

metering would enable new developments such as seasonal pricing for water, or surge

pricing as a tool of demand management in times of drought. Such changes could be

introduced very quickly; and would need an accelerated regulatory response.

In this example, using these scenarios could help the regulator understand how the

industry might change and to start discussion with stakeholders on priorities. The

scenarios would give the staff confidence in engaging with stakeholders, knowing that

a wide range of inputs had converged on determining the big questions. And all the

participants enjoyed the process and the challenge of thinking about the future without

fear, uncertainty and doubt!

And obviously, we also developed similar scenario stories for the other three quadrants.

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Scenario mapping: helping regulators to imagine possible futures

continued

But what about audit?

Scenarios could clearly be used in financial audits to consider issues of going

concern and viability and in considering the range of uncertainty in considering

the risk of material misstatement. We believe that they could be even more

effectively applied in non-financial reviews and value-for-money audits. Scenario

planning could be particularly useful in the early stages of an audit: both to help

in scoping possible risks and, if auditees are involved, improving engagement

with the client.

In fact, it seems strange that auditors rarely use foresight tools to help them

consider the risks and opportunities associated with the area under their scrutiny.

Examples could be high level, Europe-wide reviews exploring the consequences

of proposed EU policies and programmes, or for exploring risk in specific

budgetary areas.

And a final consideration: the result of using scenario mapping together with the

auditees could also be that the audit would then be more about collaboration

and less, as can sometimes be the case, about confrontation.

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Using strategic foresight to navigate digital

transformation

By Duncan Cass-Beggs, Organisation for Economic Cooperation and Development

The sensation of living in a rapidly changing world is often attributed

to technological changes that quickly follow one after the other.

Duncan Cass-Beggs is is Counsellor for Strategic Foresight at the

Organisation for Economic Cooperation and Development (OECD). In

this article he zooms in on the future of the ‘digital transformation’,and

how foresight can play a role in exploring uncertainties, future

scenarios and implications, including for auditors.

Rapid change and highly divergent outcomes

Over the coming years, digital transformation will drive rapid change on an

unprecedented global scale. This pace and scale of change creates a high level

of uncertainty for decision making. The potential for sudden discontinuities and

highly divergent outcomes mean that the future cannot be assumed to resemble

a linear extrapolation of current trends. Responsible decision-making requires

that organisations invest greater effort in considering proactively a range of

plausible future scenarios and their potential implications. Doing so can help

ensure that strategies and policy frameworks put in place today are more likely to

be resilient and adaptive in the face of the various potential directions that digital

transformation could take.

Identifying key uncertainties

An important step in preparing for the future is to identify relevant key uncertainties.

These are issues where, based on the best current evidence, there remains

significant debate and divergence about the potential direction of change and likely

future implications. The following are seven examples of key critical uncertainties

surrounding the future of digital transformation.

A first key uncertainty is data control: will the increasingly vast amounts of data

generated through online activities and the Internet of Things (and the conversion

of this data into value through artificial intelligence - AI) be controlled by individuals,

governments, corporations, or intermediary organisations? Or will data be so

ubiquitous and plentiful that nobody can effectively control its production or use?

A second critical uncertainty is market structure and concentration: will network

effects and increasing returns to scale cause global data-driven markets to be

connected through only a few online platforms serving as intermediaries? Or could

an abundance of data and accessible AI lead to a decentralisation of economic

activity to a large number of smaller organisations and firms?

A third uncertainty concerns the internet and international trade: will the principle

of a globally connected ‘open Internet’ continue or will there be stronger cyber

boundaries between nations, regions, or different technology platforms?

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Using strategic foresight to navigate digital transformation

continued

Fourth is the world of work: to what extent will automation replace or

complement human activities? Will an automated world see higher or lower

unemployment, and to what extent will traditional employment contracts be

replaced by self-employment and gig-work – where individuals provide short-

term labour and may be paid by output delivered rather than time spent?

A fifth uncertainty is around well-being: will further digitally-driven development

worsen inequality? How will the increasing ability of AI to detect moods and

influence opinions impact mental health as well as trust and cohesion in society?

Sixth, security and privacy: will improved security measures lead to lower levels

of digital risk or will more sophisticated malware and greater integration of the

physical and digital worlds increase risks and conflict? Will a more interconnected

world lead to the end of privacy, or will technologies be developed to strongly

protect privacy at the source of data collection or its use?

Finally, there is critical uncertainty on the role for governments: might a

growing number of governments take a more active role in facilitating digital

transformation by providing unique digital identities to citizens and building the

infrastructure digital firms operate in? Who will control the potential next frontier

of governance, namely the ongoing iterative process of ensuring alignment

between AI and societal values?

Exploring Alternative Scenarios

On the basis of key uncertainties one can elaborate a range of alternative

plausible scenarios about the future. Scenarios are neither predictions nor

aspirations, and it is assumed that none of them are likely to come about as

described. Rather, the aim is to provoke discussion about a broader range

of future possibilities than may commonly be considered in policy-making.

The following is an example of four draft scenarios currently being explored

at the OECD, representing broad alternative contexts for the future of digital

transformation:

Scenario 1 ‘iChoose:’ a world where individuals have taken their online data and

identities into their own hands, and are using this in active ways to further their

economic opportunities, civic participation, and personal development.

Scenario 2 ‘Platform governments:’ in this scenario, a number of governments

have taken a highly active role in digital transformation and gained increasing

effectiveness and relevance as a result. These governments are developing their

own online platforms to manage interactions with citizens, business, and civil

society.

Scenario 3 ‘Corporate Connectors:’ large, global technology corporations as one-

stop shops for virtually every aspect of our lives. They take a more active role in

global governance and in addressing challenges such as climate change and

digital security.

Scenario 4 ‘Artificial Invisible Hands:’ a super-abundance of data, artificial

intelligence and universally accessible tools of digital innovation have created

a world where economic activity is highly decentralised and in a rapid ongoing

state of innovation and disruption.Applying foresight to explore implications for

policy

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Using strategic foresight to navigate digital transformation

continued

Applying foresight to explore implications for policy

Using strategic foresight to explore the key uncertainties and scenarios outlined

above can help organisations better anticipate and prepare for the future by

making better decisions today. Some questions that can help start discussion in

your organisation include:

- What are some key uncertainties regarding the future impact of digital

transformation for your organization or in your policy area?

- How might different scenarios relate to your policy area? What new

opportunities and challenges could emerge under each?

- What changes may be needed to your strategies and policies today in order to

be better prepared for different scenarios in the future?

Foresight for Auditors

The high level of uncertainty created by digital transformation has a number of

specific implications for auditors. How could digital transformation impact the

function of auditing? For example, what if the ability to audit algorithms and the

use of big data for their impacts becomes an increasingly important priority, and

what new techniques, skills and capacities would this require? How can auditors

contribute to the readiness of governments and organisations by conducting

strategic foresight studies on emerging issues and their implications? And finally,

how can auditors help to ensure that their clients are adequately preparing for

digital transformation and its uncertainties? For example, how could performance

audits include a requirement to identify and consider key future uncertainties

and scenarios and the implications of these for achieving the objectives of the

program?

By demonstrating, supporting and encouraging good practices in foresight the

audit function can play a major role in helping organisations and governments –

and by extension society – prepare for an uncertain future..

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Engaging in foresight:

a must for the ECA to

be a global leader in

public auditing

Interview with Juhan Parts, ECA Member

By Gaston Moonen,

Directorate of the Presidency

At the end of 2017 the ECA College decided to establish a ‘Future

Foresight Task Force.’ This group of five ECA Members and support

staff was asked to develop proposals that would help to make the ECA

‘future proof.’ Juhan Parts is chairing this Task Force, and is keen to

explain why it is so important for the ECA to engage in foresight and

what it entails for the ECA.

Foresight and vision

When speaking with Juhan Parts about foresight it quickly becomes clear

how much he is at home with the topic and determined to make it stick at

the ECA. His replies and analysis are laden with facts, but delivered with wit,

enthusiasm, and visionary perspectives on how to move this topic forward.

And with no fear of being explicit and taking positions: ‘Whatever we do at

strategic level, we should first have a broad picture. This is always a challenge:

what do you do to create a vision! Foresight provides you with tools to

develop such a vision and find answers, answers on how to be at the cutting

edge of digitalisation, to be leaders in public auditing.’

Working on foresight and creating foresight capacity is not new for Juhan

Parts. He explains that foresight was a core element in his previous functions,

which included, respectively, Auditor General, Prime Minister of Estonia and

Minister of the Economy and Communications. ‘When I was a minister we

developed, in 2010, what we called

Growth Vision

in a public body called the

‘Estonia Development Fund`. This was meant to be a ´constant foresight`

institution focusing on economic development. In addition, we initiated

a process in Estonia’s government, asking questions such as ‘What does

government mean in a democratic, free society, with many stakeholders in

business, academia, civil society, local government, and operating in the EU?’ It

means that you cannot govern on your own. The biggest challenge for politics

“

Foresight provides you with

tools to develop such a

vision and find answers [...]

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Interview with Juhan Parts, ECA Member

continued

is how to come together and have a common platform for understanding

where we are going. The logic here is common goal-setting to create a growth

vision for a country, in my case Estonia.’ Juhan Parts refers to a document

entitled ‘Goals and aspirations for the next decade.’ He adds: ‘We started this

work with an enormous trend mapping exercise for our country, with the

ultimate aim of developing a vision for its future. It was during this effort that

for the first time I had the opportunity to work with professional foresight

people. When we came together in the Task Force I was glad to share my

experience.’

Audit and foresight: natural partners

When elaborating on the relationship between audit and foresight and

why it is important for an auditor to have an idea of the future, Juhan Parts

presents a number of arguments. ‘First of all, foresight is not forecasting, it is

not speculating. If you look at our work in the Task Force, a very important

takeaway is that foresight should always be based on the facts. Looking at the

future does not mean leaving the facts aside!’

The second point he mentions is that the audit standards envisage that

Supreme Audit Institutions (SAIs) should link their work to emerging risks. ‘As

auditors we have to understand the risks – but this is very similar to assessing

the likelihood of events that may or may not happen in the future.’ Thirdly,

he underlines that SAIs always need to have a broad picture to understand

what is going on, globally, Europe-wide, making connections and causal

relationships. ‘Foresight can be a tool to provide answers or at least some of

them.’

‘Focusing your attention’ is the fourth point Juhan Parts raises. ‘We are a

small institution with limited resources. Therefore we need to focus these

limited resources on the most relevant topics now and in the future. We need

a systematic approach to structuring our areas of responsibility.` As a fifth

element of his response, he underlines: ‘Foresight at audit level should give us

a source to set audit criteria and ask questions such as "Are the policies that

we examine addressing problems which are likely to remain relevant in the

future?"

Core elements to make the ECA future proof

Coming back to the work of the Task Force, Juhan Parts explains the mandate

given to the Task Force: what should the ECA do to be future proof? ‘We

came up with three elements. First, we need an autonomous capacity and

skills to do foresight for audit. Secondly, we should integrate this capacity,

this knowledge it provides, into the ECA’s strategy process. And thirdly, this

knowledge must be mainstreamed into our core business process, which is

auditing.’

Another important element Juhan Parts identifies is how the ECA is going

to use technology for its core business. ‘We need to think about new

technologies and the impact on our assurance work. Likewise for our

performance audits, and here we have to be attentive to the goals the two

types of audit work pursue, because they are very different.’

When asked about how to integrate foresight best into the audit process,

Juhan Parts points to three aspects he considers essential. ‘The first result of

any foresight is trend mapping, and the Task Force did this as a pilot exercise.

The outcome is an identification of trends which are most important for

the Union, as we are the EU’s external auditor. This pilot exercise should

“

The biggest challenge

for politics is how to

come together and have

a common platform for

understanding where we

are going.

... a very important

takeaway is that

foresight should always

be based on the facts.

“

Foresight at audit level

should give us a source to

set audit criteria and ask

questions...

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Interview with Juhan Parts, ECA Member

continued

be discussed at management level. This should be, for example, not only

identifying that migration is important, but why, what possible scenarios

there are with what possible implications. This can serve as input for the next

phase in our strategy.’

As a second stage Juhan Parts indicates a need for a permanent internal

capacity for scanning the ECA’s audit environment, and in particular for

identifying how the auditee is tackling the trends which were identified in

the previous phase. ‘Subsequently we get to the real strategy – what goals

the ECA will set up in the audit work, considering these trends and scanning

information. Once we have those goals we want to achieve with our audit

work, in each specific area, we can ask which audits we need to achieve these

goals. This is where our audit work programming comes in.’ With a smile he

adds: ‘This means that when we come to launching the audit, the background

dynamics are already there!’

Adopting a foresight culture

One of the challenges an organisation faces is how to engage its staff with

new things, with management decisions on which course to sail, whether

it is a new strategy or the internalisation of foresight methods. Juhan Parts

recognises this as a challenge: ‘If you go into depth in foresight you will realise

that this is some kind of art, a way of analysing things, a perspective on how to

look ahead. It is not simply another in-house administrative procedure to be

dealt with.’ He then explains the cultural change that he sees as necessary to

come to applying foresight. ‘There should be triggers, call them drivers, if you

want. There are goals set for every single audit, and these goals are not just

a kind of output, they have to be impactful.’ He clarifies that this goes further

than merely communicating about the audit results or doing a conference. ‘It

is not simply finalising the audit report, submitting it to parliament, issuing

a press release, and done. We need to be clear, beforehand, on what impact

we want to achieve, how we achieve it and how to measure whether we have

achieved it. What are the triggers that can really create the organisational

preconditions to get to such an approach?’ He concludes that the ECA

Members and the senior managers have a common challenge to address.

‘Without leadership in this, you cannot change things – just by saying to staff

‘Do it this or that way.’`

For Juhan Parts making optimal use of technology, in particular given the

ongoing trend towards digitalisation, is ‘an essential building block for making

the ECA future proof.’ He adds: ‘My lesson learned from the past is that you

need to be open to using emerging technologies to create opportunities.

Try to be a leader and not a follower. What is critical here is your mind-set,

because you can always find arguments not to do something. At the ECA we

should go for innovation, and not find impediments in international audit

standards or elsewhere.’ He concludes that this requires a readiness, starting

from the top level.

Juhan Parts is convinced that the audit compliance work of the ECA, leading

to the ECA’s annual Statement of Assurance, needs to make better use of the

new technologies that are already available. ‘Big data, artificial intelligence

(AI) and in the future probably block chain; they are developing rapidly and

everybody is investing in them. We are in a unique position to make such

investments and become standard setters. We are a small institution, but

this may be an advantage. I am sure that we can use this technology for our

purpose.’

“

if you go into depth in

foresight you will realise

that this is some kind

of art

“

There should be triggers,

[...] There are goals set

for every single audit...

“

Try to be a leader and not

a follower. What is critical

here is your mind-set...

We are in a unique

position to [...] become

standard setters.

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Interview with Juhan Parts, ECA Member

continued

Main takeaways from the 2018 ECA seminar on foresight

As to the outcome of the discussions he held with his colleagues at the ECA

seminar on foresight, Juhan Parts identifies four main takeaways. ‘As to the

two questions of whether we should introduce foresight into our strategy

process and consider an oversight capacity, I think the overall consensus

was clearly positive. Another important takeaway was that the digital reality

is already here or, if not, coming soon. Our choice is to jump on this train

regarding the digital transformation of our assurance work, or not.’

As a third issue he indicates that the ECA mandate is much broader than

it sometimes is considered to be in-house. ‘We should not diminish our

mandate by not using it to the fullest. Our mandate is what was ratified in

the Treaties and agreements by all EU Member States. Our mandate is a

duty

to protect taxpayers’ interests and the effectiveness of EU policies, no less.

There is sometimes confusion about what we are obliged to do, what we are

entitled to do, etc. On top of this, not questioning certain political decisions

is sometimes used as a pretext. Everything is political, but for us, as the EU’s

external auditor, it is crucial that we assess the effects of these policies in an

independent,

objective and professional way. This is a very big challenge and

makes us an important element in the functioning of EU democracy.’ Clearly

intrigued by the topic he adds: ’If we diminish our role, for whatever reason,

we diminish the functioning of democracy.’ Then, concluding: ‘Then we have

to ask ourselves why the situation in the EU’s neighbourhood is getting

worse, or why the convergence of the less developed economies in Europe is

not happening anymore. What is our responsibility here?’

As a fourth take away, he refers to other SAIs: ‘Others are using foresight for

their work, some have already been doing so for several years.’ He recalls

the case of the U.S. Government Accountability Office, that they have been

applying foresight for over eight years now. ‘The SAIs in the USA and Finland

are probably most advanced, but they are not the only ones.’

Setting our own agenda

For Juhan Parts foresight also provides an opportunity for the ECA to be

in a better position to set its own agenda, making well-informed choices

based on scenarios linked to facts instead of intuition. ‘Of course, the logic is

trend mapping, environmental scanning, goal setting and then the selection

of specific topics to be audited. But always keeping in mind: what impact

do we want to achieve? Every audit should have such building blocks.’ He

underlines that it is not always easy for auditors to have impact and that

another challenge will be to analyse all the facts. Again, he comes back

to the importance of being an objective, impartial guardian of taxpayers’

money. ‘We need to be bold and critical, but also fair when assessing policy

impact. And we need to be aware of preconceptions on certain policy issues.’

In his opinion, the core question should always be what the effectiveness

is of using EU taxpayers’ money through European programmes or EU

regulation. ‘We should not be echoing the Commission, not for our audits,

nor in our opinions on future legislation.’ As for the level of interest in reports

produced according to this logic, Juhan Parts is not afraid: ‘If audits are

chosen in line with our goal setting there will be interest in what we say.’

Apart from what the ECA audits, Juhan Parts believes that the ECA should set

its own agenda on

how

it audits. He expands on an issue he raised before.

‘Take our assurance work. Many things are going on regarding financial

audit topics and everybody is trying to track this, be it in the private audit or

public audit arena. The trick is how to change the whole issue.’ Juhan Parts

can imagine a big impact here: ‘If we change the current logic it will change

“

If we diminish our role,

for whatever reason, we

diminish the functioning

of democracy

“

... always keeping in mind:

what impact do we want

to achieve?

We need to be bold and

critical, but also fair

when assessing policy

impact.

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Interview with Juhan Parts, ECA Member

continued

the total management and control landscape. If we are able to do this in an

innovative way, calling for a new way of thinking and organising at the level

of the auditee, see how robots can help in audit, how we can use analytical

tools offered by AI to innovate and identify compliance risks, fraud risks, etc. -

then we can trigger a fundamental change. And we need to start here, at the

top of the audit pyramid.’

Setting the agenda also entails fulfilling some conditions. For Juhan Parts it is

clear that much more expertise is required. ‘If we want to be more pertinent

we will need more policy expertise. And I mean confirmed experts in the

areas we choose to focus on. And this means that we should be able to

offer them something interesting.` He believes the ECA is in a good position

to offer an interesting work environment, provided that there is enough

flexibility in the ECA’s human resources policy. For him, this even goes as

far as being independent of the Commission’s staff regulations, which is

currently not the case. ‘For me this is a strange set-up and decreases the

flexibility we need.’ A second element he raises is more networking. ‘In the

areas where we need this expertise we will need more networking.’

Foresight on the ECA: which future(s)?

When discussing the future(s) of the ECA and where it will be in ten years

from now, Juhan Parts expresses a strong hope that foresight will be

embedded in ECA activities, as proposed to the ECA Members: ‘I really think

we need a strong and permanent foresight capacity that is firmly plugged

into the strategic planning and audit processes.’

In addition, he believes that there are at least two decisive factors on

how the ECA will look in the future. ‘I think independence is critical to be

independent of the sector, as an audit institution, vis-à-vis your auditee. It is

not that we just declare, as ECA Members, ‘We are independent.’ We should

really look at the mind-set, motivation and conditions of everybody working

in our organisation in the sense that they optimise such an independent

attitude.’ He links this to performance audits and the choices made there: ‘If

we have the right expertise, if we get the right drivers in place for selecting

the topics that have an impact, then we can be standard setters in adding

value for policy decision-makers.’

The second decisive factor he identifies is the digital challenge. ‘If we take

up this challenge of digitalisation, and we do an extremely good job during

the next ten years … then we will be global leaders in public audit. But it

cannot happen overnight. We should test learning by doing. To become the

standard setter in auditing we need to start today.’

“

... we need to start here,

at the top of the audit

pyramid.

If we want to be more

pertinent we will need

more policy expertise.

“

... we can be standard

setters in adding value for

policy decision-makers.’

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Task Force charts foresight territory for the ECA

By Andreas Bolkart, Directorate of the Presidency, ECA

At the end of 2017, the ECA decided to create a foresight task force to propose

measures to make the ECA more future-proof. Why was this task force created?

What does foresight in audit mean? Who is behind the Foresight Task Force and

what have they accomplished so far? Andreas Bolkart works in the Directorate of

the Presidency and heads the secretariat of the Task Force. Which makes him the

ideal candidate to shed some light on the background, set-up and activities of the

Foresight Task Force.

Establishing the Task Force

The story of the Foresight Task Force began in September 2017, at last years’ ECA seminar,

the annual ‘away days.’ At that seminar, the ECA Members shared the feeling that while

the then recently adopted

2018‐2020 strategy of the ECA

provided a strong impetus for

improving and extending the range of products and communicating better about them,

the ECA could still do more to develop its forward thinking capacity. The Members saw

the need to improve the ECA’s ability to identify long-term policy problems and to make

use of this information when formulating its strategic and operational priorities.

The 2017 seminar concluded that the ECA needed to reflect on establishing a strategic

capability, almost like an internal think tank,-thinking structure in order to make the ECA

future proof. To follow up on the conclusions of the seminar, a Task Force composed of

five ECA Members ( Ildiko Gáll-Pelcz, Mihails Kozlovs, Leo Brincat and João Figueiredo,

chaired by Juhan Parts) was set up. The Task Force is supported by the Directorate of the

Presidency.

The Task Force started its journey in January 2018 with a clearly spelled-out mandate

from the ECA College: identify future thematic areas of interest for EU citizens and policy

makers and assess the need for a permanent future foresight capacity in the ECA.

The Task Force decided to first explore the future-proofing and foresight theory and

methodology. It did so by studying a wealth of literature and by reaching out to the

vibrant community of foresight professionals in audit firms, European and international

institutions, academia and SAIs. Some of these consultations were conducted as part of

study visits to partner organisations such as the United States Government Accountability

Office, the United Kingdom National Audit Office and private audit firms. As a result, the

Task Force established a firm grip on understanding the foresight toolbox and along the

way made dozens of valuable connections with foresight experts.

Pilot trend watch

The Task Force quickly realised that a frequent starting point, and indeed the backbone of

any foresight activity, is analysing trends and drivers of the future. To get ready for future

challenges one has to scan the environment of the organization to detect indicators and

drivers that give clues about the future. When doing this, it is vital to truly look beyond

the current, imminent challenges in our environment and project the organization in the

future.

Therefore, the Foresight Task Force undertook a pilot trend analysis for the ECA based on

more than 40 internationally recognised trend studies and consultations with more than

60 experts. The resulting study, in its preliminary version, has been presented internally at

the 2018 ECA seminar (see page 32). This study is meant to be a living document that will

form the basis of future ECA foresight work. So far the study has not been published, but a

visual overview in form of a metro map is reproduced on the next two pages.

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Task Force charts foresight territory for the ECA

continued

From left to right: Martin Weber, Director;

Joao Figueiredo and Leo Brincat, ECA

Members, Juhan Parts ECA Member and

Chair of the Task Force; Ildikó Gáll Pelcz and

Michails Kozlovs, ECA Members and Andreas

Bolkart, ECA Directory of the Presidency

Task Force Members

Technology wake-up-call in audit

The trend analysis pointed in particular to the opportunities provided by new

technologies for the future of audit, in particular of financial and compliance audit.

The Task Force held several consultations with private audit firms and concluded that

there are many developments, which are analysed and reported to the ECA College

for possible options.

The accelerated development of digital technologies and artificial intelligence

has opened up huge possibilities to improve the quality, efficiency and relevance

of assurance audits. High-level commitments by Commission and Member States

to create a European-wide e-government may create additional opportunities.

Innovation in these areas could lead to large resource savings. The use of these

new methods depends largely on access to and connections between auditee data

sets. Guaranteeing full access to these systems will thus be key. The Task Force also

consulted, particularly for the trend watch, with ECA senior officials and experts

in the Audit Chambers. In addition, it consulted support services like information

technology.

ECA events centred on foresight

Foresight was also the main theme at the 2018 ECA seminar on 20/21 September

that was organised by the Foresight Task Force, with the help of experts from the

Organisation for Economic Cooperation and Development and the U.S. Government

Accountability Office.

Participants discovered what future-proofing and foresight is, how other

organisations introduced it and how they use it fulfil their core mission. The seminar

also explored options for the ECA to use foresight in its core business and discuss

the implications of such an approach on audit and support processes. This event was

organised around a set of thought provoking speeches by external guests, which

allowed the ECA Members to have a very productive discussion on the way forward

with foresight in the ECA.

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Task Force charts foresight territory for the ECA

continued

The Task Force was also asked to prepare the Management Seminar on 6 December

2018. This seminar will provide an opportunity to discuss the foresight topic with the

middle management level.

Foresight principles

As regards ECA’s future foresight work, a few basic principles clearly emerged for the

Task Force:

•

Foresight and future-proofing are umbrella terms for methodologies and

approaches that take volatility, uncertainty, complexity and ambiguity

as their starting point, explore possible and probable futures, including

a preferred one, and generate insights and ‘cross-sights’ that enable

transformative decision making today.

Foresight is about the core business process. For Supreme Audit Institutions

(SAIs) that means it is not an intellectual side-event but impacts the strategic

orientation, the selection of future audits and reviews, methodology and

reporting as well as the development of future capacity and knowledge.

Consequently, foresight is used at key decision-making points on strategy,

work planning, audit methods and reports.

Foresight is an organisational mind-set - a way of doing things - that affects

everybody in the organisation albeit in varying intensity. That means that it

has to be introduced gradually but thoroughly through leadership from the

top and will require time to take effect. While it might be driven from a core

team, it has to be clear for everybody else what it means for them and for the

organisation as a whole.

Finally, foresight is about leveraging external resources and partners. SAIs

are generalist organisations that depend on external expertise and should

be very sensitive to outside signals, in particular when it comes to future

developments.

•

How will the ECA become future proof?

By the end of the year, the Task Force will submit a proposal to the ECA College on

how to build foresight into the core business processes in order to become more

future-ready. The proposal will build on the experience of other organisations

recollected by the Task Force as well as the input received at the ECA seminar.

Thinking about the future is of course not entirely new to the ECA. The Task Force

will therefore analyse current strategy, planning, audit and support processes to see

where elements of foresight could usefully enhance our practice. If the proposals are

approved by the ECA College, the ECA will continue its foresight journey in 2019.

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The 2018 ECA seminar:

all about making the

ECA ‘future proof’

The ECA seminar, the annual ‘away day’ of the ECA leadership, provides a regular

forum for reflection about the ECA’s strategy, work and organisation from a long-

term perspective. This year’s topic, future-proofing and strategic foresight, was very

much in this spirit. The ECA Members discussed how to make the ECA ‘future proof’.

Barbara Auer provides insights on the main issues discussed, also on the input by

this year’s guest speakers to the discussions.

By Barbara Auer, Directorate of the Presidency

This year’s topic for discussion: making the ECA ‘future proof’

This year’s ECA seminar took place on 20 and 21 September 2018 in Überherrn,

Germany. For two days, the ECA Members discussed how the ECA should position

itself to be better equipped to face future challenges and to benefit from future

opportunities.

The seminar, and the different topics discussed, had been prepared by a ‘Foresight’

Task Force led by ECA Member Juhan Parts, with support from the ECA’s Directorate

of the Presidency (see also the article on the Task Force on page 27).

Discover future-proofing and foresight: OECD and the US GAO sharing their

experiences

The seminar's first session focused on future-proofing and foresight at other

organisations. Two external guest speakers shared their organisation’s experiences

and insights with the ECA leadership: Duncan Cass-Beggs, Counsellor for Strategic

Foresight to the Secretary General of the Organisation for Economic Cooperation

and Development (OECD), and Stephen Sanford, Strategic Planning & Innovation

Manager at the U.S. Government Accountability Office (GAO).

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The 2018 ECA seminar: all about making the ECA ‘future proof'

continued

Duncan Cass-Beggs recalled that in a world where change happens faster than

individuals or governments can keep up with, foresight is more important than ever

(se for more details on page19). He defined foresight as thinking systematically about

the future to inform decision-making by exploring and preparing for alternative

plausible futures. In his keynote speech, he also suggested that the ECA should look

into the following three ‘foresight’-related questions:

−

What plausible future changes could impact the ECA – its role, capacities, etc. (i.e.

'foresight for the ECA')?

−

How can the ECA build foresight into its own work (e.g. foresight influences audit

scope, questions and methods, i.e. 'foresight in ECA audit work')?

−

How can the ECA support anticipatory governance practice by EU institutions

and governments, i.e. assess if the Commission has considered relevant future

scenarios (e.g. 'auditing for foresight')?

The second guest speaker, Stephen Sanford, presented how the GAO uses foresight

to set priorities and be pro-active in a political context. In his speech he underlined

the strong commitment to foresight by the GAO and its leadership. Foresight is

operationalised across a number of functions; it is integrated in the core of what GAO

does. Stephen Sanford also explained that foresight practice and culture is spread

across the organisation through a range of activities that are coordinated by a central

strategy team. Taken together, these activities form the GAO ‘foresight ecosystem’,

including

−

Environmental trend scanning

−

Leadership decision-making support

−

Planning support (i.e. strategic goals and planning priorities are informed by

trend analysis)

−

Audit work support (i.e. foresight influences the approach and reports of audit

engagements)

−

Capacity building such as speaker series, fora and trainings

−

Participation in external foresight networks

According to Stephen Sanford, foresight at the GAO is aligned with its core mission:

to improve accountability and the performance of the federal budget. His article on

page 62 provides more details on the GAO’s approach to foresight.

Foresight in action – a workshop facilitated by the OECD to introduce the ECA

leadership to scenario planning

The second session was a workshop facilitated by Josh Polchar and Julia Staudt (both

OECD). The workshop consisted in developing scenarios in small groups. Once these

‘stories of the future’ were developed, participants identified concrete changes the

ECA could make to become better prepared to succeed in the future.

The facilitators underlined that scenario planning should not be confused with

predictions; rather it aims to ‘train’ leaders to imagine possible, albeit unlikely,

disruptions and reflect on how their organisation could react to them.

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The 2018 ECA seminar: all about making the ECA ‘future proof'

continued

Digital audit - a revolution in the making

The third session was centered around a presentation on the topic of digital

transformation for audit by Brice Lecoustey, partner at the Luxembourg practice of Ernst

& Young (EY). He explained how current technology is already changing the methods

and even the meaning of audit. In the past few years EY has made big strides towards

automating many audit procedures. This has already changed the audit of routine

transactions, and in future will also be extended to non-routine transactions, involving

estimates, judgements and even audit scoping and risk assessment. Brice Lecoustey’s

article on page 52 provides more details.

The lively discussion after this presentation showed that digital audit is also an urgent

matter for the ECA, and the main question to be answered is where to apply it in its audits.

The ECA's future institutional positioning - what are the options?

The fourth session focussed on the ECA's future institutional positioning. The guest

speaker, Professor Matthias Rossi from the University of Augsburg, presented his

reflections on this topic.

According to Professor Rossi the ECA has a broad mandate under the Treaty which should

allow it to play a more active role than in the past. His contribution on page 69 provides

further details.

Final session of the 2018 ECA seminar – all about drawing (preliminary)

conclusions…

During the final session, a clear consensus emerged amongst the participants: more

needed to be done in the areas discussed over the previous two days. In particular,

the ECA should embrace strategic foresight across the organisation, but in particular

in its strategic and work planning and audit work (methods, scope, reports and

recommendations).

Studies such as the ‘ECA trendwatch’ - which had been prepared for the first time for the

2018 ECA seminar - could be an important element of a future ECA foresight system (more

details in the article on page 27). However, such analysis would need to be broken down

to determine the specific implications for our audit work and our organisation and to

support decision-making in strategic and annual planning.

Moreover, the ECA could consider setting up advisory

bodies with internal and external experts to support

future-oriented decision-making. Participation in external

foresight community networks could also be envisaged,

as long as the ECA’s institutional independence was not

compromised.

As Leo Brincat, one of the members of the Task Force,

put it: ‘In a world of rapid change and uncertainty, doing

nothing would represent the highest risk. Foresight is a

collective responsibility; it has to be lived and understood

by everybody.’

The ECA seminar is not a forum for taking decisions.

President Klaus-Heiner Lehne therefore invited ECA

Member Juhan Parts and the other members of the Task

Force to submit their proposals, by the end of the year, on

how to best introduce foresight at the ECA.

Klaus-Heiner Lehne, ECA President

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Work on Long-term Trends and Uncertainties

at the IMF

By Alberto Behar and Kristina Kostial, both with the International Monetary Fund, and Professor

Rafael Ramirez , University of Oxford, and with Normann Partners*

As is the case with many other organizations, the International Monetary Fund (IMF) has been

using scenario planning (SP) as part of its foresight work, known inside the building as ‘Long-

term Trends and Uncertainties’ (LTU). Within the IMF Alberto Behar and Kristina Kostial, working

as respectively Senior Economist on the Scenarios Team and Deputy Director in the Strategy,

Policy and Review Deparment, work on a daily basis with these issues. In this article, they explain,

together with Rafael Ramirez, Professor of Practice and Director of the Oxford Scenarios Programm,

Saïd Business School and Green Templeton College, University of Oxford, and with Normann

Partners, and who advised the IMF in this work, explain why and how this is done and provide

some insights on how this type of foresight work has helped the IMF in doing its work.

Engaging with long-term challenges and being agile in the face of

uncertainty enhances the IMF’s effectiveness

The IMF’s primary

mission

is to ensure the stability of the international

monetary system. It does so in three ways:

surveillance

of the global economy

and the economies of member countries;

lending

to countries with balance of

payments difficulties; and giving practical help to members through

capacity

development.

IMF surveillance and lending programs involve rigorous analysis of

developments with horizons of up to five years. Yet the global economy is

undergoing longer-term transformations that subject the future to considerable

uncertainty and complexity. So, the question arose of how to incorporate these

aspects in our analysis.

By their nature, long-term transformations are subject to Knightian Uncertainty.

Such “unknowable unknowns” contrast with quantifiable risks, which have

implicit or modelled distributions derived from past relationships or data.

Scenario planning (SP) engages such uncertainty, thus complementing the

IMF’s more established methods for discussing and quantifying economic risks.

SP helps us surface and challenge assumptions and explicitly map our different

mental models through which to interpret events

. Notably, SP recognizes

diverging views as an indispensable asset because the Knightian future is

unknowable.

IMF in its second round of building and using scenarios

With strong support from and engagement with our top-level management,

we are experimenting in the IMF with establishing SP in the institution while

not overly formalizing it. As a learning institution, the IMF emphasizes SP as a

learning process – documents are inputs, not final products. So far, we have

done two rounds of SP.

* The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF,

its Executive Board, or IMF management.

1 In particular, we have used the Oxford Scenario Planning Approach (Ramirez

& Wilkinson, 2016;

Ramirez, Churchhouse, Palermo, and Hoffman, 2017).

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Work on Long-term Trends and Uncertainties at the IMF

continued

The first round, which started in 2012, commenced with the

preparation of LTUs, on which we sought feedback from senior

officials and the IMF’s Executive Board. Based on these LTUs, senior

managers - in a dedicated two-day workshop - developed a set of

scenarios.

The second scenario round started in 2016 and is in progress at

the time of this writing. Here we asked junior staff and guests

from outside the Fund to build new scenarios structured along

axes representing two key uncertainties (the deductive method).

This approach differed from the one we used in first round, which

did not have pre-imposed structures (the inductive method).

Implications of the scenarios were then discussed by management

and the Executive Board and also used by various departments

to think about specific problem sets that are relevant to our 189

member countries.

The current scenario set considered possible future contexts the Fund

may face over 25 years and is structured by two key uncertainties. First,

how much might

technological change

enhancing humans (or not) have

mattered for the economy directly (e.g., the future of work and global

income distribution), and indirectly through how policymakers and

regulatory frameworks act? Second, to what extent might societies have

come to

trust

the ability of established institutions to deliver services amid

such changes? How such uncertainties might play out is depicted using

three scenarios (Figure 1).

Circle of Trust:

Technology raises productivity

and well-being. Political systems deliver stability

amid pressures on wages and demand for social

services. Distributed Ledger Technologies make

transactions more efficient but add systemic

risks and challenge traditional regulators.

Twin Peaks:

Automation has progressed,

winners take all, and trust in political systems

is eroded. Activity concentrates in powerful

centers. Wage compression causes a global

recession prompted by a crisis in a large

economy. Shockwaves split the global economy

into two blocs.

Tech Race:

Technology is well integrated, but

information mismanagement creates distrust in

data and institutions. Corporations, individuals,

and governments are in a competitive

struggle amid political, economic, and social

fragmentation.

Figure 1: 2042 Scenarios (produced in 2017)

Source: IMF

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Work on Long-term Trends and Uncertainties at the IMF

continued

How LTU has influenced our work

According to Jeremy Bentham, Shell’s Vice President who heads their

scenario team, effective SP leaves ‘fingerprints’ on the insights it

generates. We have found several marks of our SP on IMF work. Examples

are presented in Box 1.

Box 1: LTU Fingerprints on the IMF’s Work

Surveillance:

Thanks to recognizing their importance for global financial stability,

formerly ‘emerging’ trends like inequality are now part of our surveillance. LTU helped

us gear up to advise how countries can assist those left behind by technological

change and global economic integration. Scenarios inform Early Warning Exercises,

which aid surveillance through discussions of vulnerabilities to plausible though low

probability and high-impact risks.

Lending:

In response to the Ebola outbreak, we established the Catastrophe

Containment and Relief Trust to provide grants for debt relief for the poorest and

most vulnerable countries hit by catastrophic natural disasters or public health

disasters within a very short time frame. SP sensitized us to how the Fund can help

stop a non-economic trigger from causing a global snowball effect on economic

growth and stability.

Capacity Development:

The scenarios

helped assess how technological

changes affect members’ needs and

the modes for assistance.

Source: Pixabay

IMF experimenting in incorporating LTU more in operational work

Attempts to tie scenario planning to our work program continue to show

promise. For instance, the IMF is working on identifying new surveillance

priorities and reviewing how it might better conduct surveillance. We

want this review to look at the future surveillance landscape through the

lens of uncertainties concerning long-term economic prospects, while

exploring challenges and opportunities for our member countries and

the global economy. Also, the sub-Saharan Africa Fall 2018 Regional

Economic Outlook

features new purpose-built scenarios in a chapter

on the future of work. The scenarios, which describe potential paths for

technology, global economic integration, and climate change, call for

openness to adapt development strategies. The scenario set, which will

feature at a special event in sub-Saharan Africa in December, will inform

our dialogue with sub-Saharan African countries.

2 The semi-annual outlook is available at

https://www.imf.org/en/Publications/REO/SSA/.

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The European Political Strategy Centre’s

Experience with Strategic Foresight: safe-spaces,

networks and walking-the-talk

By Ricardo Borges de Castro, European Political Strategy Centre, European Commission

The European Political Strategy

Centre (EPSC) is the European

Commission’s in-house think

tank tasked with providing the

President of the Commission and

the College of Commissioners

with strategic, evidence-based

analysis and forward-looking

policy advice. To fulfil this mission,

Ricardo Borges de Castro, advisor

on Strategic Foresight to the EPSC,

explains how the EPSC brings

foresight to the frontline of EU

decision-makers.

Source: European Commission

Mainstreaming foresight

With regard to the future, policy- and decision-makers start from a level playing field. Unless

one has extra-sensorial abilities, no one knows what it holds in store. In fact, the future

should always be expressed in plural terms: there are several plausible futures, not a single

one. To use

Stuart Candy’s

clever expression, the future is a ‘landscape of possibilities,’ even if

in most settings (maybe with the exception of the private sector) it is more frequently seen

as a landscape of challenges.

Yet, strategic foresight and anticipatory governance techniques can help policy- and

decision-makers better prepare for the future. And, in today’s more volatile, uncertain

and complex world, these approaches and tools are rapidly growing in importance. Once

misunderstood or scorned (‘Ah! So you’re the guy with the crystal ball?’) foresight is today

being mainstreamed across policy areas. Indeed, many, including in the European Union, are

now following in the footsteps of Finland and Singapore – perhaps two of the world’s best

examples in the field of governmental foresight.

This was in fact part of the reason for setting up the

European Political Strategy Centre

(EPSC) – the European Commission’s in-house think tank: to provide President Juncker

and the College of Commissioners with strategic analysis and long-term policy advice. As

an on-demand, service-oriented policy ‘start-up,’ the EPSC has sought, from the outset, to

reconcile the usual constraints of day-to-day priorities and politics with long-term strategic

thinking and planning. This implies a degree of agility and flexibility that is not necessarily

a given in many large public administrations, and that also leads us to innovate in the way

strategic foresight methodologies are used – especially with regard to its resource and time-

consuming nature.

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The European Political Strategy Centre’s Experience with Strategic Foresight: safe-spaces,

networks and walking-the-talk

continued

Key elements in the EPSC’s foresight journey

The EPSC’s strategic foresight journey has been – and continues to be – one of creating

safe

spaces

for open debate, building internal and external

networks

and

walking the talk.

Safe spaces

are particularly important because conformity, groupthink and risk-aversion do not

mix well with preparing for the future. Creating a safe-space within the Commission, where

colleagues from across the institution (and elsewhere) can break the usual silos and hierarchical

barriers, and openly brainstorm about policy issues and their potential future implications,

has greatly contributed to our mission. Like holding a blank sheet of paper waiting to be

filled, not knowing about the future is an ideal starting place to challenge assumptions, push

beyond traditional intellectual barriers, and reach uncomfortable no-go areas. The EPSC’s lunch

seminars are now a cherished tradition that have helped nurture creativity and out-of-the-box

thinking among Commission staff.

Networks

are also central to our work. By both reaching in and reaching out, the EPSC is

building a network of internal and external experts that are key to exchanging ideas and

contributing to the Centre’s intellectual muscle. Whenever possible, rather than only reading

a report or a book, we seek to engage with its authors. This gives us a chance to ask questions,

to challenge or be challenged by those who know most about a given topic and to see the

issues through the lenses of others. The EPSC also regularly takes the extra step to go directly

to where the knowledge and experience is and learn from those who lead in their respective

fields. The Centre’s study visits to

IMEC

– which stands for

Interuniversitair Micro-Electronica

Centrum

- in Leuven (to learn about state-of-the-art research and innovation) or to the City of

Mechelen (to understand how counter-radicalisation strategies can be successful) are just two

examples.

By spearheading the Commission’s involvement in the European Strategy and Policy Analysis

System (ESPAS) – a unique EU inter-institutional

collaboration that aims to build preparedness

for upcoming challenges and opportunities, the EPSC also contributes to building a global

community of foresight practitioners, strategists and planners, from the US, Canada or Brazil

to Singapore and Pakistan. The

ESPAS Annual Conferences

held in Brussels (the next one

will be on 28-29 November 2018) act as an incubator and springboard for emerging ideas

on the future(s), as well as an advocacy platform towards a ‘culture of preparedness,’ across

governments, institutions and societies.

Of course, more than creating a niche within the Commission, the EPSC is dedicated to making

strategic foresight more of a mind-set within the institution. And our work starts in-house:

walk the talk.

Strategic foresight is mainstreamed across the EPSC’s interdisciplinary team.

Trends, horizon scanning, scenarios, visioning, backcasting or even the ‘zoology’ of foresight

(i.e. Black Elephants, Grey Swans, Black Swans, etc.) are now part of the group’s vocabulary and

work.

EPSC helping others towards strategic foresight

Either through learning by doing or with the help of expert training, the EPSC team has been

fully introduced to the methodologies and techniques of foresight. To support and expand this

effort beyond EPSC walls, and with the help of Angela Wilkinson – a world-renowned foresight

expert – the Centre has published a

Strategic Foresight Primer.

This readily accessible and easy-

to-use guide on strategic foresight — a ‘foresight for dummies’ — explaining the nuts and bolts

of the process, can be used by anyone, from the public to the private sector.

As the ECA makes its own inroads into foresight, it can count on the EPSC’s intellectual safe

space, be part of its growing network, and ‘walk this walk’ together as the European Union

continues to shape its future.

1 European Commission, European Parliament, Council of the EU, and European External Action Service, with the

Committee of the Regions, European Economic and Social Committee and European Investment Bank as observers

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From left to right: Leopold Schmertzing, Freya Windle-Wehrle, Danièle Réchard, Eamonn Noonan.

Source: European Parliament

How foresight helps parliamentary work:

the European Parliament’s experience

By Danièle Réchard-Spence, European Parliamentary Research Service

Governing is all about anticipation and making well-informed choices. As a key player in the

Union’s political process, the European Parliament is developing a foresight capacity. Danièle

Réchard-Spence is Head of the Global Trends Unit embedded in the European Parliamentary

Research Service. She explains what her unit does and how it reaches out both internally and

externally to ensure that foresight information gets to policy decision-makers.

Developing foresight capacity

Foresight is a proactive approach to help us conceive alternative futures, using established

techniques such as horizon-scanning, trend analysis and scenario development. This work

begins with factual evidence, but it is not about ‘forecasting’ or ‘predicting,’ it is about

understanding what might happen in the future and how we could or should anticipate

adapting.

The European Parliament (EP) has long been active in this area. In the 1980s it created the

Science and Technology Options Assessment

(STOA) panel. Legislators and policy-makers

needed independent, impartial and accessible information about developments in science

and technology (S&T), and scientific foresight projects were conducted to this end.

After several crises hit the European Union, a further step came in 2015. The Global Trends Unit

was set up within the European Parliamentary Research Service (EPRS) to mainstream strategic

foresight. This unit is tasked with systematically studying changes in the global economic,

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How foresight helps parliamentary work: the European Parliament’s experience

continued

social, and geopolitical environment. It seeks to identify the challenges and choices that

these may pose for policy-makers over time. The Global Trends Unit focuses on medium- and

long-term trends that may not be high on the agenda right now, but have far-reaching and

potentially disruptive implications.

Plugging foresight into parliamentary work

How does this work feed into parliamentary work? The annual 'Global Trendometer' aims to

provide foresight for decision-makers in the EU, by analysing changes in these medium- and

long-term trends. The publication does not offer answers or make recommendations; rather,

it presents summarised information derived from a range of carefully selected sources

(such as OECD, US National Intelligence Council, NATO or World Bank reports). The latest

issue of the Global Trendometer (September 2018) analyses long-term trends on India, the

labour-share of income, and democracy and artificial intelligence. It also features two-page

contributions on geoengineering, remittances, food security in China, economic waves,

the US after Trump, public procurement and deep fakes. The Global Trends Unit may also

monitor external studies, such as on the ‘Global trends 2030: geopolitics and international

power’ or ‘Global trends 2030: impact and implications for economy and society in the EU.’

Publishing insightful written material is only one part of foresight. Another is mobilising

collective intelligence and imagination to engage in longer-term thinking about the

challenges and choices. To this end, the Global Trends Unit is experimenting with a particular

tool, that of the ‘Key Assumptions Check.’ This is a structural analytical technique which

allows for a rapid interactive check of a small number of initial assumptions on a specific

subject. The goal is to ensure that its work serves its primary ‘client,’ the Member of the

European Parliament. The unit also maintains a continuous worldwide dialogue with other

organisations, working on foresight or maintaining data sets that can fuel into its work. In

terms of being in-reach, the Global Trends Unit for example set up the ‘EPRS Foresight Club,’

which meets on the Friday following a Strasbourg EP plenary session. The setting of this

meeting is informal, playful even: a theme is set, most often by a participant outside the

unit. After a short introduction to get the ball rolling, participants have the opportunity to

comment on the topic from their own perspective. A recent Foresight Club session, in July,

explored the topic of space data; a forthcoming session will consider ‘remittances.’

ESPAS: teaming up EU institutions on foresight

The Global Trends Unit’s work serves as a direct contribution to what is known as the ‘ESPAS’

process. The European Strategy and Policy Analysis System (ESPAS) was established in 2010

at the initiative of the European Parliament. It has developed into a permanent process of

administrative cooperation at high official level to share analysis of long-term trends facing

the Union. The four partner bodies are the European Parliament, the Council, the European

Commission and the European External Action Service. The Committee of the Regions, the

Economic and Social Committee and the European Investment Bank take part as observers.

The upcoming ESPAS Conference (28-29 November), jointly organised by the European

Parliament and the European Commission will wind up the 2015-2019 cycle with a view to

publication of the 2019 ESPAS report on Global Trends.

Foresight strengthening democratic capabilities

In today’s world of ‘uncertainties’ and ‘risks,’ democracies need to demonstrate their capacity

to set long-term goals, to anticipate what is coming, to mitigate risks and to develop

resilience. It is commonly assumed that authoritarian regimes have a kind of comparative

advantage in this. This assumption needs to be challenged: there is no better place than

a democratic representative institution to put together collective intelligence, find the

necessary compromises, and to give a sounding board to dissenting voices. This is where

foresight can help.

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What does the future hold for the

EU? How will the EU hold on to the

values which are fundamental to the

European project? On 17 October

2018 Klaus Welle, Secretary-General

of the European Parliament, gave a

presentation with the title The Future

of Europe, focusing on longer-term

thinking, and on the political and

societal challenges the European

Union (EU) will have to face in the

near future. With the EP elections

coming up in 2019 he pointed out

the numerous external pressures and

influences that concern EU citizens,

such as globalisation, migration, or

economic stagnation. Below you

will find the key issues he presented.

Subsequently you will find the

interview he gave Derek Meijers

and Gaston Moonen about the links

between the global race, institutional

quality, and ambitions and their

fulfilment.

The future of Europe:

a collection of opportunities

Presentation by and interview with Klaus Welle,

Secretary-General of the European Parliament

Vítor Caldeira

Klaus Welle

By Derek Meijers and Gaston Moonen,

Directorate of the Presidency

Historical perspective: putting the EU of today in perspective

Attendance by ECA colleagues was high for Klaus Welle’s presentation, who

was introduced by Eduardo Ruiz Garcia, ECA Secretary-General. Klaus Welle

opened his introduction by looking at two words often heard nowadays:

Europe

and

crisis.

He suggested starting with a historical overview, presenting

the achievements of the EU. Such a historical view could help to put

things into perspective. He referred to the late eighties of the last century,

highlighting that the existence of the EU overcame totalitarianism, not only

in some Member States in Southern Europe, but also for Eastern Europe.

The

West

- standing for human rights, a liberal democracy where the rule of

law prevails - managed to move over 1000 km to the east, and in a peaceful

way. He also referred to some figures that tell a story, such as, due to an

increasingly global economy, life expectancy in Africa going up by 20 years -

in approximately half a century.

He continued along these lines. Klaus Welle recalled that in the nineties

Eurobarometer expectations were not very optimistic about the introduction

of the euro or the ratification of the Maastricht Treaty. Nowadays, the euro

is the second currency in the world. And from a historical perspective there

has been, since the nineties, almost an avalanche of treaties: Maastricht,

Amsterdam, Nice, Lisbon - with huge consequences for the mandate and

activities of the EU as a whole and the EP in particular. In 1991, the EP’s

mandate related mainly to budgetary provisions. In 2018 the EP is on an equal

par with the Council, having the last word on a number of issues.

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The future of Europe: a collection of opportunities

continued

Geographical perspective: outside and inside the EU

In analysing historical trends, Klaus Welle found that, for every generation,

once or twice sudden shifts occur and history seems to take a different

direction. This was clearly the case in 1991 with many changes happening

on the eastern borders of the EU. He referred to possible forces that might

lead to such change, for example the general feeling of solidarity in Germany,

allowing reunification in 1990. He has the feeling that now we are also living

through a turning point. This was more clearly the case, in his view, in 2016,

when the referendum for Brexit was held and Donald Trump got elected

as US President. And there is much less of a feeling of solidarity now, it

appears, with neighbouring countries of the EU. He pointed to tensions with

Russia, blocking countries such as Ukraine and Georgia from taking over

more ‘western’ based institutional reforms. And looking at the southern EU

borders, he referred to religious battles going on in the Arabic world, military

dictatorships and migrant burdens for some countries such as Libya, or

failing state structures (Lebanon). He observed that, overall, the global order,

established in1945, has been called into question, not least for the World

Trade Organisation, handicapped by actions of one of the global players.

As a last geographical perspective, he referred to trouble on the northern

EU border, with Brexit looming. Insecurity seems to prevail on all of the EU’s

borders.

Klaus Welle pointed out the same conclusion could be drawn for

developments inside the EU: the 2008 financial crisis is not over yet since

there is no proof yet that the EU can go back to normal financial conditions.

He drew an analogy with a patient still used to the safety and comfort of

intensive care. In addition, the financial crisis left some systemic question

marks: is it a system where financial profits are privatised and losses are to

be borne by the community, by the public at large? And has globalisation

brought progress for all of us, also if you are less rich, less educated, less

succesful? Klaus Welle referred to the last US presidential election, where

industrial workers – apparently sharing a feeling that they did not benefit

from globalisation – tipped the scale towards Trump. Job security also looms

large for jobs formerly considered safe, like bankers and lawyers, where big

changes also seem to be coming for ‘white collar’ workers. Another example

he gave related to the media, where there used to be an intrinsic quality

control, a certain codex of staying close to facts, and being explicit about it

if you did not. Nowadays, in social media, this assurance of quality control

seems to have disappeared, with news provision aiming more and more to

be entertainment. Therefore, Klaus Welle concluded, insecurity also prevails

inside the EU.

Changes in political outlook: from an open to a closed perspective

The EP Secretary-General also identified some changes on the political

stage. While in the past a centre-left government would be succeeded

by a centre-right government, leaving the fundamentals of the system

unchanged, things have changed with the rise of populist parties. Klaus

Welle mentioned that ‘nationalist’ parties was a more appropriate name here,

since an important element in their programme was to provide protection to

citizens through closure. This goes together with a key question on what kind

of society political parties propagate: open – inside a country, towards the

EU, or at global level. Or closed , closing doors on trade, migration, climate

protection, multilateralism. For him this leads to the question of whether, if

the citizen is looking for protection, it can be offered in an open society? Or

is it necessary to close? He recalled the Bratislava Council meeting in 2016,

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The future of Europe: a collection of opportunities

continued

where an agenda of protection in an open system was developed: border

protection, immigration control, antiterrorism measures, or social protection,

to mention but a few.

With this in mind, when looking at the EU and EU action, Klaus Welle identified

a mismatch between what citizens asked for – protection – and what the EU

delivered. Or, as he subsequently phrased it: ‘People have been asking for

an elephant and we delivered a mouse.’ In his view, the EP is one of the most

sophisticated legislative machines, processing thousands of amendments

with no problem. But he argued that nowadays it is not good enough to be a

legislator. What is needed is complementary executive capacity. This means an

ability to deliver executive action, not only legislation. The EU needs to build

up complementary executive capacity so that when a request from Bulgaria

for border support arrives – as it did in 2015 - the EU can deliver.

Obstacles - and opportunities for the EU to deliver

LLooking at citizens’ expectations Klaus Welle raised the following core

question: is the EU able to deliver? He identified six obstacles to doing so.

first obstacle

is that the EU is not built on a

demos

present in one nation, but

in 28, soon likely to be 27. So the EU is based on pluralism. This makes it a lot

more difficult to provide solidarity. For the EU, however, the underlying motto

is cooperation. And the goal is to bake a bigger cake so that everybody can

get a bigger piece. The model is not: somebody else gets my piece of the cake.

As soon as an image of winners and losers occurs, the EU model has difficulties

coping. Redistribution policies at EU level are not popular and are often left

in the hands of the Member States – see for example social security issues

and taxation. Or, take the distribution of migrants - also more a zero sum

game. If problems of redistribution occur, then the policy answers shift. Klaus

Welle pointed to the shift in resolving banking problems – from bail-out to

bail-in. Or the shift in migration issues – from redistribution to border control

agreements with EU neighbour countries or solutions through development

aid.

Secondly,

solidarity is based on a common identity. Klaus Welle referred to

figures of 5% of Europeans calling themselves first European and then a

Member State nationality, while 40% would give the European identity as

second choice. So how to grow such a common identity? He concluded that

this needs time to be developed. After all, in the 19

century only 3% of what

are now called Italians spoke Italian. Over 200 years ago Germany counted

over 300 different entities.

As a

third obstacle

Klaus Welle referred to the EU budget, representing about

1% of overall EU Gross Domestic Income (GDP). Also here, history puts things

into perspective for us: in 1913 the US federal budget amounted to a similar

1%, which changed substantially with the introduction of a national income

tax and the challenges faced during the Depression. However, there are ways

out, as Klaus Welle pointed out, referring to the Juncker Plan, formally known

as the European Fund for Structural Investment (EFSI), which shows that

leveraging EU finances is a possibility.

Klaus Welle identified the Treaty on the Functioning of the EU as a

fourth

obstacle,

saying that, unlike in the past, a ‘wholesale’ Treaty change would

be very unlikely for the future: ‘We need to work with the Treaty we now

have.’ He suggested changing the perspective on the Treaty, looking not at

the Treaty as what we are not allowed to do, but seeing it as a collection of

unused opportunities. He pointed out that the real sovereignty transfer takes

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The future of Europe: a collection of opportunities

continued

place through political decicions. He gave the example of the concept

Spitzenkandidaten,

which was not speficied in the Treaty but worked

out for the EP, the Commission, and the Council. The clearest example

was Claude Juncker being

elected

as Commission President. He brought

forward another concept – with a German name - the EP is currently

working on: ‘Leistungsbilanz,’ identifiying at different levels, including

communities, what the EU does for you, bringing the EU closer to its

citizens.

Klaus Welle identified the executive capacity of the Commission as

the

fifth obstacle.

Clearly the Commission has a need to have more

executive capacity to assist where Member States cannot cope alone with

transnational issues, such as security.

The

sixth and last obstacle

he mentioned was strategic planning

capacity: to what extent is the EU capable of facing other blocs. China is

establishing itself as a global power, leading to clashes with the US on

trade. And with an annual growth rate of 7% India is moving up. For Klaus

Welle this raises the question: will Europe be an actor or an object for

others to toss around?

The future is soon, opportunities are now

Finally, he put time into perspective: 2030 seems like a long time away

but that time span - from now - contains only two legislative terms. Klaus

Welle pointed out that nobody knows what 2030 will look like. However,

the question is how we have to change now to remain in command of

our own fate. He concluded that the EU should be seen as a collection of

opportunities, expressing the hope that the plans for improving the EU

will turn out well.

Reflecting with Klaus Welle:

interviewing him about the future of Europe and foresight

Level playing field and EU institutions

TThe EU is continuously competing with

the rest of the world on economic issues, for

example the costs and conditions of labour.

Competitors may not always respect the

conditions and regulations the EU has put in

place to create a level playing field. How can

the EU address this issue, ensuring economic

activity within the EU?

Competing on salary levels or working

conditions has never worked, because if

that were the case, Africa would be the

global economic leader. Yet it is not. I think

you always have to see this ‘global race’ in

the context of productivity levels, as high

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The future of Europe: a collection of opportunities

continued

productivity levels give you the possibility to keep up an ambitious system of

environmental and social protection. Therefore, I think that our productivity is

a key factor in staying ahead and maintaining all the living conditions that we

are very much attached to. But it will also depend on our innovative capacity

and the quality of our institutions.

Speaking about the quality of institutions, there is some fear that, at the level of

EU institutions, this quality is negatively influenced by the institutional habits that

jeopardise good governance, the rule of law, human rights and social protection.

How should the EU and its institutions deal with that? How can we arm ourselves

against forces that seek to lower the hard-fought-for norms and values currently

in place?

This issue is one of the reasons why I insist that we have to think of the EU, not

only as the EU institutions, but as the sum of the EU institutions, the Members

States, the regions, cities, localities and villages. Why? Because 99% of what

is executed and administered, is executed and administered by the Member

States, by regions, or even at local level.

The quality of this multilevel EU is directly proportional to the quality of the

administrative structures of the individual Member States. This is also why the

European Parliament and the European Commission follow the issue of the

rule of law in certain Members States very, very closely. And it is not an issue of

sovereignty, because the moment you choose to join the EU, to integrate and

benefit from it, you also commit to uphold a certain institutional quality, and

you cannot deviate from that afterwards.

Looking at the quality and functioning of the EU institutions, and specifically the

EP: was this one of the reasons you set up the European Parliamentary Research

Service (EPRS)?

The idea behind the EPRS was to develop the EP’s secretariat general from a

more administrative body into a parliamentary support service that actively

enables the Members of the European Parliament (MEPs) to take best-

informed decisions, thus adding value to the overall quality of EU politics

and governance. To be able to do so, we first increased our productivity in

the technical support services, such as translation and interpretation, which

allowed us to innovate and to shift resources to political support for MEPs and

to build up a fully-fledged research service of 160 analysts.

An important aspect of the ERPS is that its publications are public, whereas

many national parliamentary research services do not share their documents

more widely. This was essential for us. The result has been an EPRS that

benefits the EP as a whole and contributes to a more informed public debate.

And not only at EU level, but also in the Member States, where we can see

that national parliamentarians are making use of our products to have a more

informed debate at national level as well.

This links back to my view of the European Union as a system of multilevel

governance. As the democratic quality of governance is not just decided

at EU level, but also by the democratic quality that exists at national or

regional levels. And if we believe in democratic scrutiny, it is our obligation to

strengthen those institutions and politicians in their role. Which in turn will

boost confidence in the EU institutions as well.

The ECA is very conscious of writing in an accessible way for its stakeholders, for

non-expert readers, and aims to be transparent and inclusive for the EU citizen.

“

... our productivity is a key

factor in staying ahead...

“

... the moment you choose

to join the EU, to integrate

and benefit from it, you also

commit to uphold a certain

institutional quality, and

you cannot deviate from

that afterwards.

“

... the democratic quality

of governance is not just

decided at EU level, but also

by the democratic quality

that exists at national or

regional levels.

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The future of Europe: a collection of opportunities

continued

These are some of the key moral values of the EU, and where citizens expect EU

institutions to lead by example. However, some people, like a former judge of the

ECJ, warn of the moral corruption of EU institutions, referring to criticism related to

the appointment of senior EU staff or discussions about the lack of transparency

on cost reimbursements. What do you think should be done about this for the

future?

The EU is a very complex organism and can only operate in a process of

permanent adaptation. Surely, we can always improve ourselves, and we

should! But when we compare our project, it becomes clear that the EU

institutions are far ahead of what is currently the standard at national level.

The main question is: do people still believe in the gains of cooperation,

or do they believe they are better off by just defending their own interests

without that culture of cooperation? The EU depends on people believing

that through cooperation we can grow the cake and improve our lives and

well-being. Which is contrary to nationalism, which basically says to the

whole population: your piece of cake would be much bigger if you wouldn’t

cooperate.

Facts, perceptions and ambitions

Taking up the issue of a well-informed and fact-based public debate, you

mentioned in your presentation that we have seen increasing friction between

facts and perception in recent years even to the extent that subjective perception

may have outweighed objective facts as the decisive factor in national elections.

What role should the EU institutions play, and this is especially relevant for the ECA

as an institution that is built on fact-finding and objectivity?

The EU can only be successful if it has the trust and the active support of its

citizens, and to earn and keep this, we need to be factual and show them

what we do. Of course, some national politicians try to take advantage of the

people’s perception for their own gains, and people are entitled to choose to

regard or disregard individual facts. Nevertheless, I am convinced that a clear

and factual message will last longer than one that plays on gut feelings and

fear.

However, it is also a question of language. As EU institutions, we should not

formulate from our own perspective, but from the citizens’ point of view. That

is a big difference. When we write in a way that is widely accessible and ensure

we are not excluding people just because of the way we are writing, or the

words we are using, we can reach our public and enable citizens to make their

decisions based on the facts.

In your presentation, you mentioned that one of the problems of the EU was that

in some areas people expected the EU to deliver an elephant, but what the EU

came up with was a mouse. In its most recent annual report, the ECA stressed that

the EU should not make promises it cannot deliver. Although these are slightly

different perspectives, both point out that the EU should be realistic in what can be

done. What is your perspective on that?

The trick is to combine realism and the question of

what can be done today,

with the knowledge that, in the long term, we have to be further ahead.

People see the world changing around them and look at the EU for – bold –

answers. They want to have a clear perspective and the EU should offer that.

This means that we have to be realistic today and at the same time ambitious

to be able to improve ourselves tomorrow.

“

The EU depends on people

believing that through

cooperation we can grow

the cake and improve

our lives [...] Which is

contrary to nationalism,

which basically says [...]

your piece of cake would

be much bigger if you

wouldn’t cooperate.

“

As EU institutions, we

should not formulate

from our own perspective,

but from the citizens’

point of view.

... we have to be realistic

today and at the same

time ambitious to be

able to improve ourselves

tomorrow.

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The future of Europe: a collection of opportunities

continued

What if …?

FForesight, the special theme of this ECA Journal, is an essential element of this

realistic and forward-looking attitude. How do you relate to foresight and the way

foresight is actually used in the political decision-making process?

Foresight is a very useful process in which the institutions and their

administrations can explore different perspectives on the future with the

help of scientists. Identifying different possible futures also means having the

chance to avoid certain futures, or some of their aspects.

Moreover, foresight helps us to create and promote a culture of cooperation

between the different institutions and other administrations, as we start to

understand that we are really working on the same issues. We might come

from different points of departure, but we are working towards the same goal.

Foresight includes thinking in ‘What if` scenarios, perhaps not unfamiliar for

economists such as yourself. What do you consider the most daunting ‘What if?`

question for the next ten years?

The key issue will undoubtedly be the rise of China and how the US will cope

with it. The question being whether the global order can find a balance in that

situation that is acceptable for everybody or not. China surely has the potential

and ambition to develop to number one status and that implies it will contend

with the US for that status. You can already see the US has been changing its

view on China very drastically in the most recent months and taking action,

and that will force everybody else to take a position.

In your presentation ‘The Future of Europe’, you opened by saying that the title

is very positive, implying that it actually has one. Then you raised the question of

whether the EU would manage to stay in charge of its own future, or be subject to

other actors’ future activities. Given all the challenges ahead: if we continue the

way we are working now, will it be a bright future?

I think that if you compare the EU with any other region in the world, we have

the best starting position. The EU has the best living conditions and offers

the best opportunities to its citizens. And although there is always room for

improvement, people, when they look around, often realise they would not be

better off anywhere else. However, in order to keep what we have achieved,

we will need to permanently adapt, modernise and innovate. We need to be

intelligent when making our strategic choices. That is the main point.

I see no reason to be gloomy. We have all the tools and opportunities, we

are the biggest economy of the world, bigger than the US, and we are

more populous. Sure, we need to continue to develop our institutions, our

mechanisms, our policies, and our ambition, but the potential is all there. The

only question is whether we have the political will to achieve it!

“

... Identifying different

possible futures also

means having the chance

to avoid certain futures...

“

The EU has the best living

conditions and offers the

best opportunities to its

citizens.

I see no reason to be

gloomy. [...] the potential

is all there.

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Designing a new audit manifesto – the ICAEW

AuditFutures programme

By Martin Martinoff, Institute of Chartered Accountants in England and Wales

The accountancy profession is mostly organised around

professional accountancy institutes, serving as an organisation to

train, regulate and represent the accountancy profession, often

since quite a long time. One of them is the Institute of Chartered

Accountants in England and Wales (ICAEW), in the business since

1880. Within the ICAEW Martin Martinoff leads the AuditFutures

programme, the ICAEW’s foresight and innovation initiative on the

future of the profession. He explains what it entails and what he

sees as the key elements in designing a modern audit profession.

How could we reach escape velocity?

In physics, escape velocity is the minimum speed needed for an object

to escape from the gravitational influence of a massive body. The audit

profession in the UK is certainly under massive pressure, with mounting

scrutiny and criticism. It intensified after the collapse of Carillion in January

2018. In response to the publication of the parliamentary select committees’

report in May, Michael Izza, the Chief Executive of the Institute of chartered

Accountants in England and Wales (ICAEW), said on the BBC Today

Programme that it represented ‘a watershed moment for our profession.’

This episode could turn out to be the defining moment for our future. Fresh

thinking is desperately needed not only to retain our position in society, but

to move to ‘a higher orbit.’

Six years ago, in the fallout of another crisis, ICAEW launched AuditFutures

with that very mission. As a foresight and innovation programme,

AuditFutures has the ambition to motivate and empower people by creating

a more positive and creative vision for audit and to catalyse innovation by

creating spaces for dialogue, collaboration and experimentation within the

profession. Over the past few years, we have developed innovative ‘thought-

leadership’ – a strategy for innovation and growth - and practical resources in

a number of areas. Our insights could offer fresh ideas at this pivotal moment

for the profession and to influence its course.

We need radical thinking and collaborative action

AuditFutures is an action-research programme that uses interdisciplinary

thinking, design-led processes and interactive workshops. We work in

collaboration with others. Our projects, events and activities are undertaken in

partnership with organisations and individuals that bring different perspectives

and thinking. We invite challenge and welcome diverse points of view. Our

programme is influenced by thought-leaders from civil society, business and

education to develop insights and to design practical steps to enable a more

systemic change that targets organisations, society and human capabilities.

We create safe spaces for dialogue and experimentation, and build platforms

to engage innovators from academia, policy and practice. Our public

events and bespoke sessions for organisations share the style and spirit of

entrepreneurship and progressive learning in an exciting, fun environment.

More than 2,000 people from 200 institutions have taken part in our activities

and over 24,000 people have visited our website.

Source: ICAEW

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Designing a new audit manifesto – the ICAEW AuditFutures programme

continued

The crisis is an opportunity

It is encouraging that there are already several initiatives in the public arena on

the future of the profession. They all have the potential to address challenges such

as regulation, services and markets of the profession. Therefore, our support and

contribution are essential.

However, the insights from our AuditFutures work suggest that ‘people and

purpose’ are two essential areas that are not the focus of ongoing public

inquiries. Therefore, it is important that we take a more systemic and thoughtful

consideration of the following questions:

•

How do we attract, motivate and inspire

people to become auditors? We have the

opportunity to redefine what it means to

be an audit professional and to reimagine

how we educate and empower people.

How might we develop a positive vision

for the profession? By articulating and

upholding a greater purpose, we can

proactively lead the discussion, instead of

responding to challenges and accepting

decisions imposed on us.

•

These are the focal points of the AuditFutures

work, which argue that we should look at the

current crisis as a great opportunity to break

through the noise and reimagine the profession.

Reaching new heights

AuditFutures sprang up as an innovation and foresight programme within ICAEW,

seeking to reimagine the profession within 21st century society. By responding

dynamically to evolving social needs, technological disruptions and concerns about

the changing nature of professional work, we offer fresh alternatives.

From our portfolio of projects and initiatives, there are four distinctive messages

that are very relevant today. We want to propose these as the key elements in

designing a new audit manifesto for the modern audit profession:

Inspire people with a bold and ambitious vision for a higher purpose

What can truly motivate people to engage and excel in their work is the

understanding of a purpose behind their actions and work. When people get

personally involved, this builds intrinsic motivation and moral sensitivity. A vibrant

and socially relevant profession that inspires and attracts talented people who are

searching for meaning and purpose.

Revive professionalism through powerful education

We need new and powerful educational experiences that develop a sense of

liberation, curiosity and commitment in aspiring professionals. Education and

training should broaden the perspective of auditors beyond the required excellence

through technical knowledge and skills but proactively guides them to develop an

understanding of higher purpose, values, public good, and ethical leadership. The

concept of ‘professionalism’ should be taught intentionally and discussed critically

(through integrating narratives, experience and philosophy) with the objective of

humanising the technical content and helping shape perceptions, responsiveness,

emotions and intuitions as part of the professional identity.

Source: ICAEW

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Designing a new audit manifesto – the ICAEW AuditFutures programme

continued

Rethink how we learn and share in the profession and reimagine

collaboration

The traditional organisational strategy is to innovate and then build barriers to

entry. At times of renewed attention to improving audit quality and fostering

market competition, there are fresh leadership opportunities for firms to learn

from each other and to share knowledge and experience. We need to think

about the practice areas where all firms could perform better and should be

collaborating instead of competing.

Adopt a design-mindset and philosophy

We want to start with the premise that the profession is offered a design

opportunity and everything within its ecosystem should align with the

professional identity, values and purpose. A design-led approach will help

create the new norm for the marketplace by innovatively reimagining what the

profession does and how it does it.

We invite you to join us

In these times of unprecedented social, economic and technological

change, we are looking

at the society of tomorrow to design the profession

of the next generation.

We offer fresh perspectives and radical thinking to

help understand the key issues and create lasting solutions. To unlock social

and organisational innovation, we need inspiring collaborations with firms,

businesses, universities, professional and regulatory bodies at both individual

and organisational level.

AuditFutures is an opportunity for you to share your ideas and passion and to

learn and contribute to shaping the future of the profession. We have mobilised

a movement and developed a comprehensive programme to reimagine the

future of the profession. Our collective ambition depends on collaboration

with others. We invite you to bring your passion, experience and commitment

to achieve something bigger together. Everyone and all perspectives are

welcome!

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Digital transformation – where private

audit firms stand

By Brice Lecoustey, Ernst & Young Business Advisory Services

Changes in data quantities and data handling methods will have numerous

consequences for audit - quite possibly they will be game changers for the

profession, and, certainly for some, they will also be mind-boggling, perhaps even

disruptive. Brice Lecoustey is Ernst & Young Partner in Advisory Services and is

leading the EU Luxembourg Digital Transformation Initiative. In this article Brice

gives meaning to a number of concepts related to digitalisation and provides

guidance on their impact.

Leveraging advanced technologies

Looking at digital impact from an audit perspective, it is not about dealing

with technologies that are disruptive in themselves, it is rather about pace,

agility, and handling the explosion of data all around us which is no longer

‘owned’ or ‘controlled’ by anyone. In audit, these massive amounts of data need

to be processed rapidly, efficiently and without error, in order to satisfy future

expectations concerning the creation of value in real time while keeping major

organisational risks at a minimum.

Major paradigm shifts are expected for many markets, as well as for

government and public services. Over the next few years the government will

operate much more by using citizen data to start and collaborate in continuous

two-way conversations based on “seamless user experiences”. Through the

Internet of Things (IoT) and big data, proactive monitoring will be supported

and services delivered by moving to smart assistants, Artificial Intelligence (AI)

and chatbots. The expectation is that data, knowledge and capabilities will be

shared in an open and collaborative approach across departments, as opposed

to the silo structures of the past. Cases for change seem to be endless.

With the right digital solution and strategic implementation, public

organisations can address some of their most pressing challenges and

transform every facet of their operations. For example, through the

introduction of AI, massive volumes of unstructured data can be processed in

a fraction of the time humans take. This will support workforce optimisation by

allocating the right resources to the right tasks. Instead of spending valuable

time on repetitive and routine tasks, human experts can now focus on more

complex, higher-value activities, such as risks and the appropriate response, in

a way not previously possible. Furthermore, AI and data analytics will support

complex problem solving by understanding context, revealing patterns and

providing insights from data to help predict future events and guide more

effective decision-making. Even business risks, such as noncompliance,

financial or reputational harm, can be reduced by leveraging advanced

technologies through the secure and centralised collection of management

information, audit records, and process logs.

Enabling a continuous and proactive audit

Given the opportunities of technology, the entire audit profession and its focus

will evolve and shift away from historic performance to a more stakeholder-

Source: Pixabay

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Digital transformation – where private audit firms stand

continued

protecting and future value-adding service, with a continuous proactive

approach to change, while remaining compliant with regulations and statutes.

But which technology is the right one and will provide benefits that will make a

positive difference? I prefer to break the field down into three high-level audit

types. First, data analytics can help to establish the scope of the audit and carry

out risk assessment in preparation for the actual audit itself, by drilling into the

accounts and related journals. Secondly, Robotic Process Automation (RPA)

and analytics have already achieved great track records for the audit of routine

transactions. And thirdly, for more complex and non-routine transactions that

require estimates and judgements, cognitive computing, AI, and predictive

analytics will provide great value.

However, simply choosing a certain technology will not be the most effective

approach. To deliver advanced and insightful audits to clients, there is a need to

deploy a combination of digital technologies and methodologies throughout

audit execution. Preferably, suggesting a data analytics solution needs to

be followed up by offering a scalable solution for capturing, processing and

analysing the available data. This goes all the way up to using visualisation in

reports, and will drive efficiencies by applying sophisticated software robotics .

Game change in auditing skills

This change in the audit process has a direct impact on the auditing skills

needed to provide future digital audit services that go beyond numbers.

The ideal auditor of tomorrow will act in multiple roles, combining a variety

of personal and functional skills, to bring a broader range of knowledge

and capabilities to the table. Audit teams will need to cover a diversity of

perspectives and backgrounds. Collecting and analysing more data than ever

and using advanced technology, such as AI and machine learning, means that

the auditor’s classical role will be transformed into a more strategic advisory

and analytical one providing more business insights and forward scenario

planning. The auditor will be capable of examining unusual and unexpected

items, revealing, addressing and resolving risks, thus improving the quality and

relevance of the audit.

But despite the technological advances, the auditors and their deep

institutional knowledge and judgement are key to assurance. The digital

transformation, even in a rapidly changing profession, is all about people and

properly handled change management.

Well-known management approaches can still be used

The general change management building blocks for a successful digital

transformation of the audit profession are not any different from those applied

in other fields, nor are they geared specifically to this profession. Besides the

critical human factor, appropriate processes and tools, as well as a proper

framework policy, governance and risk management will be needed. The

system architecture and technology provided should support the digital

change activities while the performance measurement framework is being set

up and integrated. Furthermore, it needs to be ensured that the digital function

resides and interacts meaningfully within the organisation and other teams.

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Digital transformation – where private audit firms stand

continued

Undertaking digital transformation will require proper roadmap planning,

followed by assessment of the current state of digital maturity and the

opportunities/threats. Such a transformation also requires a vision, formulated

as a digital journey based on the definition of a digital strategy, to name but a

few key elements . The implementation itself should be embedded in a proper

governance structure and implementation roadmap and transformation plan.

The entire roadmap ought to include regular reports and validation to ensure

consistency and corrective steering to keep the process on track.

Data revolution for the benefit of human capital

Just to be clear: the audit of the future is not about being paperless. It is rather

about changing and evolving the audit process by leveraging advanced

technologies and combining them with specialised and diversified talent to

provide greater insights and, ultimately, value and confidence to stakeholders.

The data deluge is changing the way organisations are run and thus the way they

are audited. Broad and far-reaching benefits can be achieved by a holistic digital

transformation that does not eliminate human capital but elevates it to value-

added activities.

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Assessing future readiness: how a private audit

contributes to addressing foresight

By Karl Braun, KPMG Germany, and Assoc. Professor Heiko von der Gracht, KPMG Germany

How to evaluate future readiness

Adapting to future market

developments has always

been an essential activity

for companies to remain in

business. Foresight activities

can help in this. But often there

seems to be a lack of knowledge

of what these activities actually

involve and what to expect. Karl

Braun, Partner at KPMG, and

futurist Heiko von der Gracht,

Senior Manager at KPMG,

help companies to address

the challenges and seize the

opportunities that await them.

At the German branch of KPMG

they have been involved in

the development of the Future

Readiness Index. Through this

index they assess the future

viability of companies. They

present the results below.

In globalised, increasingly interconnected value chains, companies are

confronted with much greater risks than in former times; even small

market shocks can be fatal in their consequences and even threaten

their existence. In addition, these dangers often cannot be predicted.

Due to the increasing complexity and rapid dynamics of international

economic development, they are likely to become even more virulent

in the coming years.

All this makes the future more uncertain than ever. The road from here

and now to tomorrow has become riskier and less predictable. How

well prepared are organisations? Do they have the necessary foresight,

flexibility and adaptability? And do they keep an eye on the relevant

trends?

At KPMG, we looked into the central question of how to measure

and evaluate organisational sustainability. Together with numerous

experts and researchers, we have developed the

Future Readiness

Index,

a globally unique initiative that ties in with current research on

future-proofing and return on foresight. We have developed the index

using the German economy as an example, but the methodology is

universally valid.

The Future Readiness Index provides a picture of the future viability of

the economy, analyses the dynamics of important developments and

shows opportunities for action and industry benchmarks (see Figure

1). The aim is to support companies in deriving suitable measures to

increase their own sustainability quickly, pragmatically and effectively.

Figure 1:

Structure of the Future Readiness Index

Source: KPMG Germany, accessible via website: www.kpmg.de

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Assessing future readiness: how a private audit contributes to addressing foresight

continued

Determining future readiness: the German case

The index is based on a survey at the beginning of 2018 of more than 600 top managers

from companies representing twelve key industries and about eleven percent of the German

Gross Domestic Product (GDP). We asked them to reflect on their current mood regarding

future optimism, to evaluate how they are positioned with regard to decisive business

factors, to state their current investment focuses, and to judge the importance of future

trends. By employing an extensive big data analysis, we derived which trends will really be

fundamental. We then compared them to the answers given by the top managers in their

self-assessment.

The overall result (see Figure 2): 6.3 on a scale of 0 to 10 with the upper end indicating

optimal future preparedness.

Figure 2:

Overall result of Index and single components

Source: KPMG Germany, 2018

Looking at the four subcategories gives a more detailed picture. Overall, 82 percent of the

German top managers surveyed look ahead at least somewhat optimistically. Only a mere 6

percent found reason for pessimism. The economy is strong, demand is high. Almost three

in four judge their product portfolio to be good or very good. Interestingly, we found that

companies overwhelmingly invest in those areas in which they are already strong. Capital is

put where the juice is flowing.

Missing some trends

Giving insights on precisely what will drive the future is the centerpiece of the study.

Analysing 24 million data points – scientific publications, patent registrations, and other

sources – the KPMG Research Cloud provided a trend map, which was matched with

the answers provided by the survey. Companies have realised how important customer

demands have become in a digital world with constant feedback loops. Meeting exactly the

customers’ needs is now possible and increasingly achieved.

The most urgent topics for us, however, are declining innovation cycles followed by

automation. That includes the mounting pressure for faster product release. The intelligent

factories of the future allow just that. Companies should therefore expand their efforts for

moving towards Industry 4.0. As the trend is just as important for the service sector, service

companies should advance on installing Robotic Process Automation and other process

optimising technologies so as not to fall back behind international competitors.

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Assessing future readiness: how a private audit contributes to addressing foresight

continued

Insufficiently prepared for geopolitical challenges

Managers point out some weaknesses themselves. In total, 62 percent feel insufficiently

prepared for potential substitutes. A similar proportion (63 percent) identify deficits in their

preparation for geopolitical changes.

Figure 3

Prioritisation of geopolitical challenges across

different industries

Source: KPMG Germany, 2018

German companies seem a bit fatalistic when confronted with the current geopolitical

risks (see Figure 3). Only 19 percent of the companies surveyed assigned a high investment

priority to adaptations to international crises and conflicts. At the same time, just about a

third of the manufacturing industry companies judged their adaptability to world economic

or geopolitical wobbles to be good.

Moving to ‘next level forecasting’

It is no surprise that companies which apply professional strategic planning tend to be more

successful than those stumbling into the future. Some disregard long-term planning as

looking into the crystal ball. Others claim it is too expensive, while a third group is convinced

they are already doing the right thing. All of them risk missing important innovations and

falling behind their competitors. Our Future Readiness Index shows that this risk is real.

Planning has to go beyond simple projections, as complexity and dynamics have increased,

extrapolation of historic data only goes so far, and sector limits become more and more

obsolete. We would advise developing next-level forecasting by employing comprehensive

foresight, scenario analyses and trend radars. The Future Readiness Index with its connected

self-assessments can be a substantial part of that. The value of the findings will even increase

with subsequent editions in coming years.

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Assessing future readiness: how a private audit contributes to addressing foresight

continued

Figure 4:

Digital Atlas Platform and connected assessment services providing an overview of more than 60 connected

business assessments including the Future Readiness Assessment and a wide range of issues such as robotics,

compliance, security, governance and transformation.

Source: KPMG Germany, 2018. Please see https://atlas.kpmg.de

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Moving from hindsight to insight and beyond:

how the Commission’s IAS embraces foresight

By Manfred Kraff, Internal Audit Service of the European Commission

That future developments have a bearing on the work of auditors and how they

execute this work is not only clear for external auditors but also an issue for

internal auditors. Manfred Kraff, Director-General of the European Commission’s

Internal Audit Service (IAS) explains below how insights obtained during assurance

work performed by the IAS are increasingly needed to provide foresight on future

challenges for the European Commission as a whole and the IAS in particular.

Value of internal audit for stakeholders

In 2017 the Institute of Internal Auditors (or IIA), the professional body and standard-

setter in which the auditors of the Commission's Internal Audit Service (IAS) are members,

presented a model to demonstrate the value of internal auditing for stakeholders (see

below).

Source: Institute of Internal Auditors

In essence, the IIA value proposition for stakeholders is that internal auditing is made up of

a combination of assurance, insight, and objectivity. Internal Auditing provides

assurance

on the organisation's governance, risk management and control processes to help the

organisation achieve its strategic, operational, financial, compliance and performance

objectives. Regarding

insight

one can say that internal auditing is a catalyst for improving

an organisation's effectiveness and efficiency by providing observations, conclusions and

recommendations based on analyses and assessments of data and business procedures.

Lastly,

objectivity

means that with commitment to integrity and accountability, internal

auditing provides value to governing bodies and senior management as an Independent

source of objective advice.

At the Commission's IAS we consider that whilst assurance is primordial - through its

function at the centre of the organisation and with its independence in reporting - it

brings an insightful view to its stakeholders in many situations. We are now analysing

how we can use foresight – defined by the Cambridge Dictionary as ‘the ability to judge

correctly what is going to happen in the future and plan your actions based on this

knowledge’ - to better prepare and execute its work programme, encapsulated in its

3-year Strategic Audit Plan (or SAP).

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Moving from hindsight to insight and beyond: how the Commission’s IAS embraces

foresight

continued

Role of IAS in identifying key cross-cutting themes

The current and future environment in the European Union and the major milestones

ahead (such as preparing for the withdrawal of the United Kingdom from the EU, launching

the new Multiannual Financial Framework (MFF), electing a new European Parliament

and a new Commission taking office in 2019) will bring specific risks and/or challenges

for us all. However, at the same time, improved management and control systems and

new instruments also provide opportunities for the Commission to deliver and maximise

the impact of the EU policies. The role of the IAS is to identify the most relevant risks and

develop a SAP that supports the Commission and the individual Directorates General (DGs),

Services and Executive Agencies in achieving their objectives and provides insight and

recommendations in those areas where improvement is necessary.

At this stage the IAS has identified the following

key cross-cutting themes

which may be

further adapted after the consultation process with the audited DGs:

- Delivering better on the ground: better regulation, implementation and enforcement;

- Strengthening the performance focus: completing the 2014-2020 MFF and preparing

the future MFF 2021-2027;

- Information technology (IT): securing the IT systems and supporting the Commission

activities and policies;

- Leveraging the impact of EU funding: innovative financial instruments;

- Addressing the challenges of externalisation (e.g. reliability of assurance provided by

third parties, adequate and effective supervision strategies and ensuring value-for-

money when third parties are implementing the EU budget);

- Protecting the EU budget: effectiveness of the corrective capacity.

The DGs have been polled for their views on the main risks related to these topics, as well as

identifying other key themes/risks at their own level, and those at the family/cluster of DGs/

Services.

IAS Annual Conferences providing a platform of exchange of ideas

The IAS Annual Conferences provide a platform of exchange of ideas where professional

auditors and financial managers can enhance their knowledge in various domains thus

helping them to provide better insights based on their work, which in turn is to the benefit

of the stakeholders. On opening the IAS 2017 Conference entitled ‘Innovation and creativity

in internal audit – Myth or reality?’ the Commission’s First Vice-President Timmermans

considered that it would be impossible to prepare the Commission for the future without

modernising its work methods and that this could not be done without creativity and

forward thinking. He called upon the IAS to assist the Commission in designing frameworks

to cope with these fast evolving changes – by offering the foresight as to how money can be

spent well and by ensuring the Commission continues to be accountable, in every possible

meaning of the word, to the citizen.

This transition to working on foresight will affect not only the speed and the quality of the

assurance that the IAS can provide to its stakeholders, but also the expectations of the

stakeholders themselves. Eventually, in order to survive, internal auditors need to stay ahead

of the game and thus need to take more innovative approaches in preparing their work.

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Moving from hindsight to insight and beyond: how the Commission’s IAS embraces

foresight

continued

Assurance based on past events (such as compliance with legal requirements, or adequate

functioning of control systems) is no longer in itself sufficient, as it is unable to provide

the foresight previously mentioned. Stakeholders and managers expect internal auditors

to be more forward-looking and –as trusted advisors- to help them navigate their

organisations through a fast moving environment. Obviously, this a major challenge for

the audit profession and will require some creativity.

The IAS's upcoming 2018 Conference on 6 November 2018, entitled

Internal Audit:

Embracing the challenges of the future,

will explore the global challenges affecting the

Internal Auditing profession and focus on the challenges in the future in order to outline

those strategies, tools and approaches deemed most effective for the delivery of value-

added results and assurance. In effect, the Fourth Industrial Revolution is challenging

governments and organisations to keep pace with the exponential growth in innovations

in technology and fast-evolving external framework. This urgently calls for an adaptation

of the Internal Auditing profession to the new upcoming needs. On the one hand, given

the ever-evolving pace of change it is more complicated for auditors to stay aligned to the

entity's top risks and smoothly execute their audit plans. On the other hand, innovation

may lead to new areas of focus for auditing, requiring a new, updated skill-set in terms of

both technical and soft skills.

Source: European Commission

Increasing insight and gaining foresight

The IAS intends to use its annual conference, in the company of fellow professionals, to

explore and discover new tools, to identify and evaluate those risks that are relevant to the

Commission in the future and to build these elements into its new 2019-21 SAP.

Moreover, through learning and exchange of ideas and the possibilities offered by the

new technological developments, it is expected that the IAS and other internal auditors

will increasingly provide the foresight that internal and external stakeholders expect in

order to manage well the risks linked to the Fourth Industrial Revolution.

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Strategic Foresight at the U.S. Government

Accountability Office

By Stephen J. Sanford, U. S. Government Accountability Office*

The GAO, the United States’

Government Accountability Office, has

long engaged in strategic foresight,

both in conducting its engagements

and managing its operations. By

systematically exploring what lies over

the horizon, GAO seeks to provide

the U.S. Congress and the public with

timely, relevant and forward-looking

analysis to assure the accountability

of the federal government and to help

policy makers make decisions that will

affect generations to come. Stephen

J. Sanford, Strategic Planning &

Innovation Manager in the Strategic

Planning and External Liaison

Department of the U.S. GAO, explains

how they do it.

For nearly 100 years, the United States Government

Accountability Office (GAO) has stood at the vanguard

of the U.S. government’s efforts to ensure government

accountability and effectiveness. To help support these

efforts, every four years we publish a strategic plan for

serving the U.S. Congress that considers emerging

trends that will likely affect the U.S. government and

society as a whole.

At a recent meeting of Members of the ECA, I

presented on GAO’s strategic planning process, which

emphasizes foresight, continuous environmental

scanning, and trend analysis as core activities. At

the meeting, I noted the approach GAO takes to link

foresight and trends about the future to help inform

business processes and decision-making processes in

the present in order to fulfill our mission.

An overview of GAO and why do we conduct foresight?

GAO is the U.S. government’s independent, nonpartisan supreme

audit institution. Since our founding in 1921, we have evolved into an

agency of dedicated and multidisciplinary staff, made up of experts in

conducting objective and fact-based financial and performance audits,

program evaluations, policy analysis, and technology assessments

covering virtually every federal program, activity, and function. By

investigating all matters related to the use of public funds, we help

the U.S. Congress meet its constitutional responsibilities and also

help improve the performance and ensure accountability of the U.S.

government. In fiscal year 2017, GAO’s work led to $73.9 billion in

financial benefits, a return of $128 for each dollar the U.S. Congress

invested in us that year. GAO also identified 1,280 other benefits,

which cannot be measured in dollars, but that led to program and

operational improvements across the U.S. government.

By exploring emerging trends, key uncertainties, and their

implications, GAO is able to highlight complex issues of greatest

concern to the U.S. Congress and the American people and respond

to them by adopting new audit and evaluation techniques as

necessary. We also believe that taking a longer view of various trends

helps us set strategic and operational priorities and better address

crosscutting and interconnected challenges that will require sustained

collaboration and innovation.

Source: GAO

David Chrisinger, Foresight and Strategic Planning Analyst at the GAO, contributed to this article.

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Strategic Foresight at the U.S. Government Accountability Office

continued

Source: GAO

How GAO conducts foresight

GAO has long engaged in strategic foresight, both in conducting our

engagements and managing our operations. Forward-looking GAO work

includes fiscal sustainability models showing the future of U.S. debt

and deficits and technology assessments on key areas of technological

innovation—including artificial intelligence, the Internet of Things, 3D printing,

nanomanufacturing, and the use of biometric screening for border security.

Such work provides evidence-based analysis to help give policymakers the

information they need to manage federal investments in technology and

science. In this sense, foresight is at the core of what GAO does.

GAO is one of the few organizations that places responsibility for foresight

and strategic planning within the same office. And this makes sense – my

team is able to seamlessly integrate the enterprise-wide foresight work we

conduct into GAO’s annual and quadrennial planning processes. Moreover,

we are well integrated into top management. My office operates under the

Managing Director of Strategic Planning and External Liaison, who reports

directly to the head of the agency, the Comptroller General of the United

States.

We recognize the importance of maintaining external networks with others

who use foresight to improve government, such as other supreme audit

institutions, international organizations, U.S. federal government foresight

communities, private sector entities, and academic programs in foresight. We

also manage and monitor GAO’s foresight ecosystem, which is a collection

of activities designed to continuously gather information and perspectives

on emerging issues, challenges, opportunities to serve as an early warning

system for new ideas and trends that might affect our work.

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Strategic Foresight at the U.S. Government Accountability Office

continued

Some of the efforts and programs in our foresight ecosystem include:

Advisory Boards, Working Groups, Forums, Programs, and Committees

•

The

Comptroller General’s Advisory Board

generally meets annually to advise

the Comptroller General—the head of GAO—on issues related to carrying

out GAO’s mission. The more than 30 members of the board have broad

expertise in areas related to GAO’s strategic objectives.

The

Domestic Working Group

meets regularly to exchange information and

pursue opportunities to collaborate on accountability issues that affect all

levels of government in the United States. The working group is composed

of the Comptroller General and the heads of 18 federal, state, and local audit

organizations.

Comptroller General Forums

are conducted periodically on topics affecting

the federal government's role in meeting national challenges. The forums

afford leaders and experts in various fields an opportunity to discuss

emerging challenges and identify actions to address them. Forum topics have

ranged from science and technology issues like artificial intelligence to health

care issues like the opioid crisis and financial issues like synthetic identity

fraud.

INTOSAI Emerging Issues Supervisory Committee, on which GAO sits as

vice-chair,

helps INTOSAI and supreme audit agencies around the world

identify important, long-term strategic issues.

GAO’s Environmental Scanning Platform

provides an area where GAO’s

foresight and strategic planning team can archive and monitor trends for the

use and inclusion in GAO’s strategic plan and other work across GAO. This

continuous scanning of trends helps ensure that GAO remains an agile and

responsive organization.

•

Foresight in Support of Audit Teams

•

The Priority Framework Program

provides an internal planning tool for GAO’s

engagement teams to discuss future audit work priorities.

The Foresight Speaker Series

aims to increase awareness among GAO staff

of emerging trends that are having transformative effects on government,

business, and society. In the last year as part of this program, GAO staff have

heard presentations from pioneer of the gene-editing tool known as CRISPR,

Jennifer Doudna, as well as an author and prominent expert on climate

change and rising sea levels, Jeff Goodell.

The government audit standards

(the

‘Yellow

Book’)

that GAO publishes

call attention to the use of prospective analysis as one approach in setting

performance audit objectives.

Over the years, GAO engagements have featured

foresight methods

to enhance our work. Some example include: modeling future levels of

government debt in GAO’s annual reports about the federal government’s

long-term fiscal condition; the use of scenarios in a report on climate

engineering; and Delphi methods and forums using subject matter experts to

provide a range of views on technical and complex emerging issues.

•

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Strategic Foresight at the U.S. Government Accountability Office

continued

GAO’s plans for the future

Earlier this year, GAO’s foresight and strategic planning team launched

The Center

for Strategic Foresight,

which is composed of prominent experts from the public,

private, and nonprofit sectors who specialize in matters related to strategic foresight

and planning. GAO believes that by leveraging the expertise of the Center’s

Fellows, we can enhance our efforts to analyze current and projected trends and

their potential impact on federal agencies and programs. GAO also believes that

the Center will further reinforce GAO’s position in the public sector and wider audit

community as a leader in foresight and strategic planning practices and will also help

GAO explore additional foresight methodologies and trends.

One area we believe foresight and its methodologies will be particularly well aligned

is science and technology (S&T). GAO plans to put additional focus on S&T issues

by expanding its longstanding work on technology assessments, oversight of federal

government science activities, and technical audit support in engineering, advanced

analytics, and cybersecurity.

Providing forward-looking analysis

The future is inherently unknowable, and foresight does not attempt to predict the

future. However, by linking foresight to our organization’s core business practices

and our audit mandate, GAO can help decision-makers successfully navigate

whatever challenges and opportunities the future does present. By being more

agile and systematically exploring what lies over the horizon, we believe that GAO

will continue to provide the U.S. Congress and the public with timely, relevant and

independent analysis to assure the accountability of the federal government and

help provide forward-looking analysis that policy makers can use to make decisions

that will affect generations to come.

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How foresight is used by

auditors: some first-hand

insights from the National

Audit Office of Finland

By Jenni Leppälahti, National Audit Office of Finland

The National Audit Office of Finland (NAOF)

aims to make better use of foresight

information and techniques in the planning

of its activities and in its performance audits.

Today’s rapidly changing environment is a

challenge for both information users and

information providers, such as Supreme Audit

Institutions. Jenni Leppälahti, Planning Director

at the NAOF, explains how the NAOF has taken

up the challenge by rethinking its own working

methods and developing techniques to serve

the Finnish Parliament and other stakeholders

better. She also touches upon the sources

used to develop the NAOF’s foresight capacity

and recent feedback received from European

counterparts through the EUROSAI network.

Source: NAO of Finland

Foresight plays an important role in the NAOF’s planning activities

The objective of the National Audit Office of Finland (NAOF) is to ensure that it can

provide timely and relevant audit information. This obviously requires efficient

planning and implementation. In addition, foresight plays an increasingly important

role in the NAOF’s analysis of its operating environment. This involves monitoring

various branches of public administration and carrying out a ‘whole-of-government’

risk analysis - representing a more integrated approach to public service delivery. And

last but not least the NAOF’s analysis also drives the selection of audit topics.

The Finnish economy is currently undergoing several major reforms, which will

also have an impact on social structures and the operating models of the public

administration. In such a rapidly changing environment, how do we make sure that our

audit planning process is generating topics which are still considered relevant even at

the time when the audit report is published?

In the planning of its audits, the NAOF makes use of a ‘whole-of-government’ risk

analysis of central government finances and the national economy to identify the

different risks involved and to assess coverage by its audit activities. The information

basis for the risk analysis is gathered utilising different methods and areas of expertise.

In addition to methods used in the fields of economics and the administrative sciences,

foresight competence and foresight information also help in achieving an accurate

analysis of the operating environment. As a part of the risk analysis, we use the

information provided in foresight publications and analysis, and different researchers

in the foresight field are interviewed for the purpose.

The NAOF has carried out the ‘whole-of-government’ risk analysis since 2008. The

purpose of the analysis is to identify the material risk areas, taking into account the

sustainability of general government finances and the risks to financial administration.

Through the NAOF’s fiscal policy audit function (since 2007) and fiscal policy

evaluation function (‘the IFI function’, since 2013) we also emphasise the sustainability

of general government finances in our work, as well as in our performance audit

recommendations.

NAOF stakeholders expect a foresight perspective

The NAOF carries out regular stakeholder surveys to monitor the expectations and

experiences of its stakeholder groups regarding its audit and advisory activities.

According to the responses, the stakeholders expect audit opinions to be drafted from

a foresight perspective. In addition, they expect the NAOF to follow a constructive

approach and consider that audited entities benefit most from recommendations that

support their future development work and decision-making.

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How foresight is used by auditors: some first-hand insights from the National Audit

Office of Finland

continued

In Finland, the central government drafts future reviews to support the implementation

of the Government Programme. Consequently, there is an abundance of foresight

information available. The challenge is to coordinate the timetables of the policy-making

carried out by different public officials, as well as their extensive data sets.

However, according to the NAOF’s observations, foresight information is not yet

systematically utilised in decision-making or in the data sets used in policy-making. At

the NAOF we aim, through our own actions, to promote better utilisation of the existing

expertise and information in the policy-making carried out by public officials.

Foresight techniques require development of performance auditors’ competences

The current development work aimed at making better use of foresight work in the

NAOF’s performance audits is based on extensive functional and information resources

and competences. In terms of performance audits, our focus is to identify efficient ways to

support and make use of the foresight approach in the NAOF’s audit activities.

In practice, better utilisation of foresight information and identification of effective

foresight techniques means a broader perspective for auditing, i.e. integrating new ways

of thinking and new approaches and methods as part of the audit work. A small team

of performance audit experts hold methodology workshops and are responsible for the

networking activities in this field.

The NAOF has already carried out some individual performance audit activities

targeting foresight work or utilising foresight information. The purpose of the foresight

development project currently underway at the NAOF is to raise awareness of the use

of foresight methodologies in performance audits, to carry out capacity building and to

further develop the use of foresight techniques in performance audits.

Networking to develop knowledge of foresight

The NAOF is engaged in active dialogue and networking with some of the key producers

of foresight information in order to ensure easy access to it. For capacity building,

methodology development and audit workshops, the NAOF collaborates with the

University of Turku’s Finland Futures Research Centre and with the Finnish Parliament's

Committee for the Future.

During spring 2018, the NAOF organised a joint information event on the foresight

activities carried out by the central government. The purpose of the event was to

exchange information between the different actors and to discuss how foresight

information can be used in audit work.

EUROSAI Dialogue on Emerging Issues

In September 2018, the NAOF organised a web-based ‘Dialogue on Emerging Issues’ for

the European Organisation of Supreme Audit Institution (EUROSAI). In total, 36 European

SAIs provided answers reflecting on and defining the most important emerging issues for

the SAIs’ work in the 2020s. On the basis of these responses, we identified a number issues

and topics related to cooperation, technological changes and the changing role of SAIs.

But respondents also suggested ways forward: for example, creating a specific EUROSAI

platform for on-line training material, encouraging joint audits, building structures and

forums for seamless exchanges of information and fostering staff secondments.

More details on the main survey results related to these three categories are summarised

in the box below.

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How foresight is used by auditors: some first-hand insights from the National Audit

Office of Finland

continued

Cooperation

Respondents consider that cooperation and collaboration between SAIs will

become increasingly important. This requires building more partnerships and networking efficiently. Cooperation also

enhances new kinds of communication with citizens and other stakeholders. SAIs need to find the right balance to

manage society-wide opportunities and threats. Global issues such as climate change and changes in the political and

media environment will require SAIs to adapt their way of working.

At the same time, the operational environment of public auditors is changing at a rapid pace. Strong inter-institutional

networks are needed to learn from each other. Exchange of best practices is considered particularly important in the

fields of new IT systems, data-analytics and possible use of Artificial Intelligence. Some respondents point out that

exclusive dependence on external expertise should be avoided and enhanced cooperation between SAIs is crucial in

this respect, as is training staff in a sustainable way and building capacity within the organisation itself. However, legal

restrictions on sharing information may hinder the establishment of efficient cooperation networks. Positive outcomes

of audit cooperation, such as examples of good practice, comparing outcomes and performance in audited areas, or

benchmarks in setting audit criteria are important. There are similar comments regarding knowledge transfer between

SAIs as an inspiration for identifying new audit topics.

Technological changes

Artificial Intelligence (AI), advanced data analytics, automation and robotisation get top priority in the discussion on

emerging issues. Use of big data and sophisticated analytics will change the nature of audits and allow for a lot of

automation. AI makes advanced predictive analytics possible and raises discussion about the nature of audits and the

new balance between auditing and development partnership (consultative approach). Respondents anticipate a major

transformation in the coming years through technological advances. This has in many ways already started – although,

as regards most SAIs, has not yet had that much impact in practice.

Respondents expect technological advances to place substantial demands on SAIs regarding finance, management,

change leadership, outsourcing and capacity building. SAIs must provide education for current employees and recruit

people with new types of expertise. In order to break down silos, organisations must build teams with the right bundle

of skills. Many participants face urgent questions relating to technological developments: where to start, which way

to go and how to get new skills and tools. In addition to educating staff or searching for new employees with IT skills

(cybersecurity and audit) and data analysis skills, auditors must develop an innovative and creative mindset. In order

to implement the changes efficiently, SAIs will need to make use of new ways of working (teamwork, networking,

customer-centricity, dialogue) and support good use of new technical skills.

Changing role of SAIs

Respondents consider that the use of foresight by SAIs could benefit society in many ways. Mainly, this is because

there is a perception that SAIs must focus their work on issues of major concern to the public and to their institutional

stakeholders. Moreover, SAIs need to enhance their ability to work more quickly and be prepared to discuss topical

issues ‘in real-time.’ However, a proactive and predictive role may also create challenges for SAIs as regards their role as

independent ‘watchdogs’. An SAI’s role is also affected by the growing need to develop partnerships regarding complex

problems, such as an ageing population, environmental issues, and respect for facts and evidence in decision-making.

An ageing population is seen as a disrupter of established societal systems, with consequences for SAI work.

At the same time, a change in political discourse and the media environment (not the least through social media) is

changing the way information and facts are treated. This also increases the need for SAIs to interact more directly with

citizens and stakeholders to be visible, credible and relevant institutions in a rapidly changing society. Respondents

see a need for cooperation between SAIs and interaction with experts in various fields as the operational environment

undergoes rapid change.

Future planning on foresight

In early 2019, the NAOF plans to arrange a foresight workshop for representatives of

Nordic SAIs to exchange information and views regarding the role of foresight work in

auditing. The aim of such active networking is to share good practices and learn from each

other. This way we will not be left to face this challenge alone.

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The ECA's future institutional positioning:

conditions and options

By Matthias Rossi, Professor at Augsburg University

Exploring future developments, possibilities and

risk can provide a whole list of opportunities for

an organisation like the ECA. But what are the

restraints and options the ECA actually faces

from an institutional perspective? Matthias

Rossi, Professor and holder of the Chair of

National and Administrative Law, European

Law and Legislation at Augsburg University ,

has extensive previous experience in advising

public bodies on their institutional positioning.

For example, he has delivered expert opinions

on constitutional, administrative and EU law

issues to the German Bundestag, various

parliaments of the German Länder and the

European Parliament. In his article he maps out

constraints and impediments but also options

and possibilities for the ECA to develop further

as an institution that matters for EU citizens, also

in the future.

Mapping the future as the EU’s external auditor

The Foresight Task Force of the ECA was set up to ‘future-proof’ the ECA. In this context I

have been asked to provide my view on the options for a possible institutional development

of the ECA in the current setting of the EU.

The following points summarize the main results of my considerations. In essence, I argue

that the ECA as the EU’s external auditor:

should show its ambition to play a stronger role among EU institutions;

enjoys a broad mandate to carry out its audit for the benefit of the EU and its

cititzens;

should build on its institutional independence as a key asset;

can also play a more prominent role in assessing the impact of forthcoming

legislation.

Stronger role among EU institutions

At present, the ECA is suffering from a lack of visibility. Its reports and other forms of

observation barely reach the public in the Member States, as important and well-founded

as they may be. The responsibility for that lies not with the ECA , but with the basic

structures of the EU public sphere – outside the ‘Brussels bubble’ a specific EU public sphere

hardly exists. This is to be regretted because the effectiveness of the ECA's audits and its

recommendations is essentially dependent on their impact in the media. Against this

background, the ECA can use the forthcoming discussions on the future of the European

Union to increase its importance. This discussion was launched by the Commission’s White

Paper on the Future of Europe, which does not present a single idea for the future of the EU

but offers five different scenarios for the Union’s evolution, which can also be combined with

one another. This White Paper has generated considerable debate within the Union and its

Member States without producing a preference for any one scenario.

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The ECA's future institutional positioning: conditions and options

continued

The ECA is hardly involved in this discussion. That implies at least that there are no plans

to curtail any of the ECA’s existing tasks and powers. However, being virtually absent

from this discussion is regrettable, because the ECA’s work is affected not only by formal

institutional proposals but also by proposals of substance. This is because they concern its

subject matter – the implementation of the budget and, ultimately, the implementation

of policies. It is therefore highly advisable for the ECA to take an active part in the

discussions on the future of the EU. Irrespective of any possible changes at EU level, the

ECA should also recapitulate and redefine its role in interinstitutional relations. In doing

so, it should consider an increase in its importance based on existing tasks and powers, as

well as an expansion of its activities.

European Parliament

European Council

Council of the European Union

Equipped with a broad audit mandate

In principle, such an extension of ECA activities is not precluded by any legal constraint.

Rather, the Treaties are already open to an extension of the ECA’s fields of action. Of

course, the rule of law not only binds the bodies and processes audited by the ECA, it

also binds the ECA itself. But the Treaties give the ECA a broad mandate relating to the

scope of its audit and also the way in which the audit is conducted. This broad mandate

also applies to the products the ECA chooses to present.

The Treaties are therefore more open than it may appear from the ECA’s day-to-day

audit work. The numerous and detailed manuals and guidelines that the ECA uses

may unnecessarily restrict the legal framework and deprive the ECA, as the Union’s

external auditor, of the leeway that is intended by the Treaties. Neither do international

standards - like those of the International Organisation of Supreme Audit Institutions

(INTOSAI) - limit the ECA’s work: they are meant to guarantee minimum standards, not to

exclude other activities. The Treaties cite two auditing standards – legality and regularity

and sound financial management. Both criteria – the legal one and the economic

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The ECA's future institutional positioning: conditions and options

continued

one – depend on each other. A measure that is incapable of bringing about the desired

objective not only makes no economic sense, it is also legally inappropriate and therefore

unlawful. Furthermore, the criterion of sound financial management is sufficiently open to

interpretation, giving the ECA considerable room for manoeuvre in this respect.

Moreover, the Treaties do not require the ECA to issue a given

type of products. Special reports and opinions are named by

the Treaties’ provisions only as examples of ‘observations.’ The

ECA is therefore free to invent other forms of publication for its

‘observations.’

At the same time, the decision by the ECA to undertake a new

activity must not hinder or even prevent the fulfilment of its

mandatory tasks as provided for in the Treaties. It will always have

to draw up an annual report and the statement of assurance, and

normally will respond to specific requests from other institutions.

For the rest, the general limits of the ECA's mandate arise

from the vertical separation of powers between the EU and its

Member States, the horizontal separation of powers between the

institutions of the EU, and fundamental rights. Since, however, the

ECA in principle has no teeth but mainly operates by publishing

information (having no legally binding instruments at its disposal),

it is unclear to what extent it would even be capable of crossing

these ‘red lines’.

Independent audit as the key element in a self-correcting system

The independence of the Members of the ECA is not ony an operational prerequisite, it is

its brand and its trump. But it must also be lived in the institution's day-to-day auditing

practice. It is central to the idea that any specific criticism of a particular measure should

not be seen as negative for the EU's image or for the image of one of its institutions. On

the contrary, it should be seen as positive in the sense that the EU has an efficient audit

institution and is therefore a self-correcting system. A functioning audit system is a central

element of the EU's institutional order. It is in the immediate interest not only of the

institutional balance, but above all of the EU’s citizens.

To get an idea of possible future tasks it may be useful to have a look at the Member State

audit institutions. They naturally perform the ‘classic’ tasks assigned to audit institutions

in a system of parliamentary government with separated powers; in addition, they often

perform other tasks. It is certainly rewarding to take a closer look at these powers.

Engaging in forward looking activities: a role in assessing legislative impact?

Particular emphasis could be placed on greater involvement of the ECA in legislation.

One way the ECA could proactively engage, in an advisory capacity, might be for it to

participate in a form of legislative impact assessment.

In particular, measures of this sort could rid the ECA of its foremost image as a ‘destructive’

force, since, as a rule, impact assessments would include proposals for alternatives.

This would give the ECA a contributory function, while also demonstrating that it is not

only concerned with finding past inefficiencies but interested in identifying how future

action can be more efficient. It would thereby earn respect without compromising its

independence, and it would be seen to be working on behalf of and for the EU citizen

rather than as just another administrative body of the EU.

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Technology will be

everything, also for

the ECA

Interview with

Interview with Magdalena Cordero,

Director Information, Workplace and

Innovation

DIRECTOR’S CUT

Vítor Caldeira

Speaking about foresight quickly brings out topics like digital

transformation and technology. For Magdalena Cordero this is no

surprise. For her, technology offers far-reaching possibilities for

innovation in audit which, as she sees it, will mean major changes

in how and what the ECA audits. She is keen to share her thoughts

about how to bring innovation closer to the ECA’s core business: its

audit work.

By Gaston Moonen,

Directorate of the Presidency

Technology at the centre of everything

Foresight is clearly a topic that lies close to the heart of Magdalena

Cordero. And not only because foresight is a key part of her professional

responsibilities. Foresight means being ready for any change that could

appear in the future. She points out that ‘technological change can be very

disruptive.’

For Magdalena the implications are very extensive. ‘Information technology,

today, is at the centre of everything we want to transform.’ She explains

a bit further: ‘In some cases, technology is at the origin of the changes,

but in most cases it’s impacted. Organisations take decisions that have a

technological impact.’ She gives an example. ‘Let’s say you decide to reduce

the carbon footprint. This means reducing travelling and optimising heating

and cooling. How can you do this? By implementing systems that allow

remote working or by analysing the information from temperature sensors.’

She continues, ‘The lack of immediate solutions should not limit the vision.

If you have an idea I am convinced that the technology will help with

implementation and, if this is not the case, it should not limit your ambition.

We need to be ambitious; after all, technology will evolve.’

“

We need to be

ambitious; after all,

technology will evolve.’

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Interview with Magdalena Cordero, Director Information, Workplace and Innovation

continued

Innovation in the job title

Ten years ago, Magdalena came to the ECA to work as director responsible

for information technology (IT). In recent years her job description has been

expanded to include ‘workplace’ and ‘innovation.’ She explains that the second

term means keeping a permanent watch on technology, identifying tendencies

and possibilities. ‘Artificial Intelligence (AI) is an area we already work on. We

want to be ready to work with big data, and text mining – as the data related

to audit can be unstructured. ’ She points out that auditing involves a lot of

reading and understanding, and developments in natural language processing

will make machines read for us. Systems can learn, summarise, classify, suggest

key words, and much more. We already have technology developed for us in

ECALab, with a dedicated group of people specialising in different techniques

and helping colleagues to apply them.’

Magdalena also touches upon a topic she has been promoting for some time

within the ECA: blockchain. ‘That is going to be the future. Our ambition is

to design business processes controlled by design to facilitate, and even

automate, audit.’ She realises that for many people blockchain technology is

still a mystery. ‘At the ECA we have implemented a pilot to show the potential

for blockchain in audit.’

Automation changing the scope of audit:

how

affecting the

what

For Magdalena, it is clear that some technologies, such as robots, will automate

part of the auditor’s work; this will allow auditors to focus more on strategic

issues. In her perspective,

how

we audit will have an impact on

what

we audit

and vice versa. ‘The world is now digital, and it is possible to use data analytics

to examine the full audit population instead of a limited one, and identify

risks.’ Smiling, she adds: ‘Then we can better identify not only

what

we’re going

to audit but also

how,

with different techniques available to do so. Having

the technology can be a stimulus and source for new questions, altering our

approach to what we audit.’ She gives the example of an audit on VAT, in which

data analytics meant outliers could be easily identified. She is also convinced

that the use of satellite data could transform the way we audit agriculture.

Creating ECALab to introduce auditors to new techniques

The existence of technology is one thing, using and applying it is another.

Magdalena clearly realises this, pointing to ECALab as a means of address the

problem. The ECA decided in early 2017 to systematically move forward with

digital audit: data analytics, text mining, visualisation, etc. ‘We decided to assign

a physical space and tell people “You’re interested in data analytics, or if you

are an auditor with a data project, please come and share on Fridays with those

who want to analyse data.” And auditors that had, and have, questions come.’

This is a source of pride for her: ‘I have to say, one year later, we have a fully

consolidated ECALab, with resources working on text mining and blockchain,

for example, thanks to a small group of enthusiastic officials from different ECA

Directorates.’

Magdalena explains that her directorate has created a methodology to move

forward with innovation The first phase is ‘re-use’. ‘You have to find out what

knowledge and interest are already in house and show how far you can get

by using it.’ Then comes the second phase, experimentation, which requires

dedicated and experienced human resources. She continues: ‘Just re-using we

can’t go far. If the College of the ECA believes we need to move forward, and

personally I think we have no choice, we need to initiate the experimentation

“

Our ambition is to

design business

processes controlled by

design to facilitate, and

even automate, audit.

Having the technology

can be a stimulus

and source for new

questions, altering our

approach to what we

audit.

“

You have to find out

what knowledge and

interest are already

in house and show

how far you can get by

using it.

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Interview with Magdalena Cordero, Director Information, Workplace and Innovation

continued

phase.’ Then she explains the third phase. ‘This is industrialisation, where

the building blocks come together to form the building, the knowledge

and resources are available and data analysis will be offered to auditors as a

service. Our ambition is to achieve industrialisation.’

Using technology to realise the ECA strategy

For Magdalena is goes without doubt that using automation technology

will be essential for realising the objectives of its 2018-2020 strategy. They

relate to three goals: transforming the compliance audit work done for

the statement of assurance, increased focus on performance, and thirdly

regarding communication. Regarding compliance, Magdalena points out that

for reusing work done by others digitalisation can help tremendously. ‘Take

those controls that have data, already digital and by using the technology

of text analysis we can issue a certification based on a very deep, yet digital,

analysis. It will allow you to cover a lot more and find the outliers.’

As to performance she brings up the topic of using open data, adding

that Member States need to follow the EU directive on open data. ‘Just by

analysing open data, you can add a lot of information into our performance

audits.’ She refers to the summer school course in Pisa about data analytics she

attended some months ago. ‘We invited an expert from the UK National Audit

Office to talk about data analysis and when asked ‘what data are you using’

the reply was: ‘100% open data.’ Just open data, which was encouraging.’

As to the third objective regarding communication remarks that everyone

makes the link what technology represents today for the good and bad. This

includes the ECA’s presence in social media for which media monitoring tools

are used, which is about text mining. With a twinkle in her eye she explains:

‘We use these media monitoring tools for communication. But we should

also use them for programming to identify from the media where the focus

is, what are the things we should observe. Then it is not just what media says

about us, it is what we learn in a subject of interest from the media. If we

want to audit something in research, let’s use the tools we have what pops

up in media. And use this feeding into our audit work programming.’ She

gives a very concrete example: ‘Let’s say passenger rights. Imagine you go to

social networks and data mine what the attitude of people, where they feel

something goes wrong. That is useful additional information.

A cultural change towards an appetite for… change

TECALab is clearly an important tool for bringing new techniques to auditors.

But according to Magdalena something else is needed: an appetite for change

and trying new things. With some prudence she explains: ‘It is not easy to

create an appetite for change in an organisation that doesn’t want to take the

risk of failure. One thing here is that, in order to change, you need to promote

the experimentational spirit and allow for investment. And make failure part

of the learning curve.’

Another important element for the take-up of new technology is

understanding the possibilities. ‘Our staff needs to understand that, when

we talk about data, we are not only talking about figures or structured

information. We are talking about text, pictures, images. All that is data.’ She

underlines that text, if digitised, is data .

“

(on media monitoring

tools)... we should also

use [...] for programming

to identify from the

media where the focus

is...

It is not easy to create

an appetite for change

in an organisation that

doesn’t want to take the

risk of failure.

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Interview with Magdalena Cordero, Director Information, Workplace and Innovation

continued

Then she brings up another misconception. ‘Auditors don’t need to be experts

in all this technology, just come to us with their original questions!’ According

to Magdalena you need to think in a multidisciplinary way. ‘It is not about

training auditors to make them experts, that’s the past.’ For her the set-up

will be that the auditor will work together with experts to identify what is

happening in an analysis. ‘In an audit team, you need specialised staff to

prepare the data and to do the data analyses.’ In her view, this might also have

implications for new recruitment. ‘In the private audit sector some companies

declare they recruit up to 20% of engineers or mathematicians.’

Alerting senior management to be prepared

All these possible changes, including changes in the work of audit, also raise

the question about the role auditors may play in the future. According to

Magdalena, the nature of performance audit itself might not change that

rapidly, but the role of the auditor will. ‘Auditors have a lot of knowledge and

expertise. They may play more of a consultancy role, which could increase

their influence at strategic level. We are already doing opinions on legislative

proposals; this is the beginning of a process.’

Magdalena believes that the core focus for her department and its people

will continue to be the promotion of innovation at the ECA. ‘We aim to be

innovating. We signal evolutions that are happening, and we want to influence

the organisation to move forward. In many cases, these changes are strategic,

they represent a real transformation and decisions must be taken at senior

management level. Management decisions and sponsorship: this is where real

transformation happens.’

Looking back at the 2018 ECA seminar on foresight, Magdalena finds that

many of the relevant issues were covered. In this context she refers to the

presentation on the ECA trendwatch map (see pages 28-29). ‘This map

highlighted, by means of many dots and crossesin this ‘subway’ map , two

things I believe are happening with increasing impact for the future. One is

artificial intelligence, which will be at the origin of the automation of our jobs,

and the other is security and cyber attacks. Those are the most intensively

‘crossed’ features of the diagram. These two topics very much relate to what I

mentioned before, the importance of technology.’

On a personal note, Magdalena points out that she expects transformation of

cities and the way people live and travel. This also relates to two other topics

she highlights. The first is demographic changes: ‘Very important from the

perspective of an ageing society.’ The second is climate change. ‘If we want

to succeed in Europe we need to focus the campaign on what makes Europe

different – all the work on environmental issues. Look at our global competitors

– the USA, China. This is the area where Europe can excel in what we are doing

well, although certainly not yet perfectly, not enough.’

Looking back and forward

When asked about the biggest change at the ECA since her arrival ten years

ago, Magdalena gives a striking reply. ‘It is actually change itself. The big

change of the ECA is that it has become much more dynamic. Ten years

ago not that much was happening, you may call it stable, if you want. The

difference now is that we are constantly changing.’ She refers to the ECA’s new

“

Auditors don’t need to

be experts in all this

technology, just come

to us with their original

questions!

“

Management decisions

and sponsorship:

this is where real

transformation happens.

... two things I believe

are happening with

increasing impact for

the future. [...] artificial

intelligence, [...] and the

other is security and

cyber attacks

“

The big change of the

ECA is that it has become

much more dynamic.

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Interview with Magdalena Cordero, Director Information, Workplace and Innovation

continued

published products, new visuals, the organisational reform, more conferences.

‘What I like most about that change – particularly from the area of knowledge

management – is that the ECA has become a more open organisation, and

not only one focusing on audit. We work more together with external experts,

stakeholders, academics, other institutions.’ She now perceives the ECA as a

learning organisation. ‘We are moving much more, trying to improve. I love to

be a member of a learning organisation and not a static one.’

And she sees a big challenge when it comes to the ECA’s staff development in

the future, giving the example of millennials. ‘We see that they are different,

even in the physical space in which they work. This is something we have seen

happening, at least in IT organisations. For example, millennials need to receive

constant feedback, which poses new challenges for managers. We send alerts

about what we observe. Millennials are not here yet, but they will arrive. The

managerial skills, the technology we are providing, the way they want to work

is completely different. This is a scenario we have to be prepared for.’

Looking forward, Magdalena hopes to see an ECA that will lead in all areas

relating to and using digital transformation in audit. ‘The ECA is now held up

as an example for performance audit, it’s a leader, at least in my perception. I

would like the ECA also to be leading the digital transformation of public audit.

But to do so we need to move fast and with ambition.’

“

I love to be a member of

a learning organisation

and not a static one.

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Source: European Commission

From foresight to audit selection:

examples at the ECA

By Matteo Tartaggia, Sustainable Use of Natural Resources Directorate

Foresight and auditing standards

Reflecting on foresight is

one thing, but making it

a component for guiding

the selection of audit tasks

which add value is easier said

than done. How is foresight

information tapped by auditors

and used in current audit

programming at the ECA? As

assistant to the director of one

of the ECA’s audit directorates,

Matteo Tartaggia is closely

involved in the design of audit

tasks and gives some concrete

examples relating to climate

change and agriculture.

When developing ideas for potential audit topics, foresight is essential

to make sure that the proposed task is going to be relevant to citizens,

the parliament and other stakeholders, not only now but also when the

audit report is published. Foresight is also recognised by international

audit standards: ISSAI 12 – part of the standards used by Supreme

Audit Institutions (SAIs) – calls on SAIs to be responsive to changing

environments and emerging risks. One could therefore argue that foresight

is built into the various stages leading to the choice of audit tasks, from

policy scans to the adoption of the annual work programme at the ECA.

From policy scans to the selection of audit tasks

Policy scans are the first step in identifying the latest developments and

trends in a policy area. For instance, our policy scan on the environment

and climate change starts with an overview of the main climate and

environment trends expected in the next five to ten years, and a longer-

term outlook, as assessed by the European Environment Agency in its latest

‘state and outlook` report on the European environment (see

Figure 1).

In the area of agriculture, our policy scans list new technologies – such as

the use of satellite imagery and precision farming – as a key development

over the next few years, and a subject highly relevant to our future work.

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From foresight to audit selection: examples at the ECA

continued

Figure 1

– An indicative summary of environmental trends

Source: EEA,

The European environment -

state and outlook 2015: synthesis report

On the basis of these policy scans we develop our audit ideas. In the Sustainable

Use of Natural Resources Directorate around a hundred auditors are involved every

year in the development of audit ideas. The sum of their experience, specialist

knowledge and particular interests means that we have extensive coverage of

topics – including ongoing and future developments across audit areas. They meet,

brainstorm, and present their ideas to our management, who, when it comes to

selecting which ideas should become audit tasks, are attentive to emerging risks

and their impact on the lives of EU citizens.

Climate change

Last year we included in our 2018 work programme a task on desertification in

the EU as a high priority. Our policy scan had identified an unfavourable trend in

soil degradation in recent decades, and the audit proposal had highlighted that,

according to the European Environment Agency, over 40 million hectares of land

in the EU were sensitive to desertification – an area bigger than Italy and Portugal

taken together. With no specific legislation or budget allocations on desertification

or land degradation, but several legal and policy documents – and EU funds –

potentially addressing these phenomena, we decided to examine whether the risk

of desertification in the EU was being addressed effectively and efficiently. As the

ECA had earmarked this as a high-priority task, the special report is expected as

early as the end of this year.

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From foresight to audit selection: examples at the ECA

continued

In fact, the role of foresight is obvious in all our audit reports and other products

concerning climate change. In 2016 we looked at the arrangements put in place

to ensure achievement of the EU target of spending at least 20% of its budget for

2014-2020 — one euro in every five — on climate-related action. We concluded

that progress had been made towards reaching the target, but there was a serious

risk that it would not be met without more effort to tackle climate change. Building

on this and other reports, in 2017 we published a landscape review on EU action on

energy and climate change, identifying a number of challenges, in order to inform

both the legislative debate and future audit work.

New technologies

But foresight is not confined to the environment and climate change. Another

very different but obvious candidate for applying foresight is the area of new

technologies. A recent example in our directorate concerns the use of new

technologies in agriculture. As I mentioned earlier, our policy scans on agriculture

had identified new technologies as a potential game-changer in future years. Upon

further investigation, we found that monitoring agricultural activities by using new

technologies was likely to develop rapidly, and had the potential to simplify and

reduce the costs of checks, for public administrations and farmers, and allow better

targeting of EU funds.

In fact, we have experienced ourselves the potential of new technologies in the

course of our audits. For years we had been visiting on the spot all the farmers

sampled for our compliance audit work for the ECA’s Statement of Assurance.

In 2017, we decided to make increased use of satellite imagery and the digital

measurement systems available, which allowed us to audit remotely one third of

direct aid transactions. We expect this ratio to increase in 2018, and reduce even

further our trips to the fields.

In light of these developments, we decided that undertaking a task on new

technologies in agricultural monitoring would maximise our capacity to comment

effectively on the developments expected over the next two to three years, and

keep abreast of ongoing developments. This task will also represent an excellent

learning opportunity to increase the efficiency of our own audits. In a way, it

reminds me of the speech given by Kersti Kaljulaid – a former ECA Member and

now President of Estonia – during the celebrations of the ECA’s 40

anniversary.

A year ago, she was challenging us to ’use technology to make financial audit

almost unnoticeable,’ so that we would be able to ‘deal with more interesting audit

questions, while algorithms sneak through the digital trail of the bills relating to the

EU budget’. I doubt that we are completely there yet, but using techniques such as I

have described above proves that we are accepting the challenge.

Foresight never ends

The challenge that doesn’t end once we have selected an audit task. We have seen

how foresight precedes and accompanies the choice of audit tasks – from policy

scans to the adoption of the annual work programme – and I have listed several

examples where the ECA has taken up the challenge of being a catalyst for change.

But foresight hardly stops there. Throughout the audit – and virtually in any audit

task, even the more traditional ones – our auditors are required to be aware of

ongoing developments in the policy area, and need to be bold and forward-looking

if they are to make relevant recommendations for the future.

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Peer learning on foresight:

experts meet at the OECD

By Gaston Moonen, Directorate of the Presidency

Meeting people in person remains important, despite the modern means of

communication. This also applies to experts being, or aiming to be, at the forefront

of foresight, identifying trends and potential scenarios for the future. Several of

them, mostly from governments or international organisations, came together

in the annual meeting hosted by the Organisation for Economic Cooperation

and Development (OECD) on 8-9 October 2018. Gaston Moonen attended this

meeting to listen and learn. Below some impressions.

Stimulating set-up for discussing foresight issues

The public sector discovers foresight. This was literally visible during the 6th ‘Government

Foresight Community’ (GFC) Annual Meeting, which took place on 8 and 9 October 2018,

at the Organisation for Economic Cooperation and Development (OECD) in Paris. The

participants list showed that this meeting is really bringing together a global community,

with several participants coming for instance from Asia and the Americas. According

to the OECD hosts, Duncan Cass-Beggs, Counsellor for Strategic Foresight in the OECD,

and his colleagues Julia Staudt and Joshua Polchar, there was also a noticeable increase

in interest. For me, neither being a foresight specialist nor a regular participant in these

events, the meeting was an eye opener how much professional thought goes into foresight

and how governments and international organisations have set up foresight capacities

to envision future scenarios and possible impacts. Another pleasant experience was the

intercommunicative way the discussions were set up, starting with a lively approach of

introducing each other.

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Peer learning on foresight: foresight experts meeting at the OECD in Paris

continued

A key objective of the GFC Annual Meeting is to share new insights on foresight,

meaning exchange on what participants thought could become a signal for change or

an emerging trend, and with which potential implications. Clearly an effort was made to

be innovative towards interaction here. With almost 60 participants this was organised

in break-out groups of around eight persons, where people presented one or two topics

what in their view could be on the cutting edge of futures thinking. This informal set-up

did not only stimulate discussions but was also useful for networking. Each break-out

group selected one or two topics to be reported back to the plenary.

The meeting was organised around 9 presentations, three presentations running

simultaneously. Participants could pick three presentations to attend, rotating after 30

minutes from one to the next presentation. Each session included a short presentation,

followed by discussion and participants had to note the most insightful ideas on cards to

be shared on a blackboard later on. The last part of the day included a panel discussion

featuring presentations from foresight members from Canada, Finland, the EU and

Singapore, on their respective systems for embedding foresight in government policy

making.

Main takeaways

Since I was only able to attend the first day of the GLC meeting, I limit myself to some

personal impressions from the rich discussions that took place. I focus on topics that may

be of particular interest for us, at the European Court of Auditors:

the use of algorithms, often aggregated in the private sector, in criminal justice

proceedings;

shift in pollution perception: people start to be more conscious of the possibly

polluting effects of their daily life choices;

increasing risks for conflict of interest in use of data - from the internet,

aggregated from cameras, etc. - by private operators in view of privacy rules, if

available at all;

trend of social disorientation because of access to information leading to

anxiousness for changes and amount of choices.

Takeaways from the presentations of foresight studies and foresight capabilities are:

putting foresight into the parliamentary grain and engage with other layers

of governance: a case study from Estonia showed the promotion for foresight

studies can come from government but also parliament, driven by budget

constraints, remaining relevant and different visions on what kind of role

government should have in society;

foresight as an anticipating policy tool and as element in the toolbox for better

regulation;

potential of audit as an incentive for government to include foresight in policy

decision making;

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Peer learning on foresight: foresight experts meeting at the OECD in Paris

continued

the role an audit institution like the U.S. Government Accountability Office

takes in mapping trends and possible implications, for example on science and

technology;

the future basis for taxes: how to ensure tax income for governments, also in

view of corporations operating globally and taxation often happening on a

national basis;

the potential of foresight to depoliticise the policy process and the need for

politicians of foresight expertise… and vice versa, since what is the use of

foresight if it has no impact in policy decision making.

Global trends, global solutions…

Overall, it was clear that there are many ways foresight is and can be set up in public

sector organisations. And that foresight can go into different directions, from descriptive

foresight – on what could be – to aspiration foresight – on what you would like it to be.

The peer learning exercise also showed how global the trends and potential futures

are. And that often scenarios to address these challenges need to be global too and

foresight experts should aim to translate this into practical solutions for policy- and –

decision makers. The foresight community that gathered at the OECD this month clearly

shares a common interest and concern for the future and the ambition to make policy

decisions more future proof.

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Reaching out

2018 ECA Award for Research into Public Sector

Auditing 2018: a tribute to former ECA President

Jan O. Karlsson

By Roberto Gabella Carena, Directorate of the Presidency, and Gilberto

Moggia, information, Workplace and Innovation Directorate

Fifth edition of ECA AWARD

Academic institutions and researchers are important partners for the ECA,

both as a respected source of knowledge and expertise in the different

audit domains, and as valuable contributors in the process of developing

audit methodologies and approaches.

Chronology of ECA Awards

2010

Jesús Lázaro Cuenca (1954-2009),

former ECA director

2012

Juan Manuel Fabra Vallés (1950-2012),

former ECA Member and President

2014

Massimo Vari (1937-2013),

former ECA Member

2016

Henrik Otbo (1949-2015),

former ECA Member

2018

Jan O. Karlsson (1939-2016),

former ECA Member and President

The ECA Award is one of the ECA

initiatives tailored to academics

scholars and researchers into public

sector auditing. This year, this price of

5000 euro has been awarded for the

fifth time. The Award also gives the

ECA the opportunity to pay tribute

to a person who has significantly

contributed to the reputation of our

institution through his or her work

and example. The 2018 ECA Award

was named after Jan O. Karlsson, who

served as the first Swedish Member

of the ECA from 1 March 1995 to 31

December 2001, including a term as

President from 19 January 1999 until

he left the ECA in 2001.

Andreea Hancu Budui

and Professor Mita Marra

received the 2018 award on

18 September 2018 during a

ceremony organised at the

ECA in Luxembourg. This is

the fifth time, the ECA award

for research into public sector

auditing is given. The 2018

award is tributed to Jan O.

Karlsson, former ECA Member

and President. This year’s price

was awarded for two different

research projects, one related

to auditing the European

Development Fund, and the

other one on how making use

of evaluations. Roberto Gabella

Carena and Gilberto Moggia

were very much involved in

organising the 2018 ECA Award

and provide further details

below.

Award ceremony at the ECA,

Luxembourg,18 September 2018

From left to right: Eduardo Ruiz García,

ECA Secretary-general; Andreea Hancu

Budui and Mita Marra, 2018 ECA Award

winners; Bettina Jakobsen, ECA Member

and Chair of the selection panel;

Klaus-Heiner Lehne, ECA President; Eva

Lindström, ECA Member; Igors Ludboržs,

former ECA Member; Robert Harmsen,

Professor of Political Sciences, University

of Luxembourg

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E2018 ECA Award for Research into Public Sector Auditing 2018: a tribute to former

ECA President Jan O. Karlsson

continued

ECA Member Bettina Jakobsen chaired the selection panel, which was furthermore

composed of Eva Lindström, ECA Member, Igors Ludboržs, former ECA Member, and Robert

Harmsen, Professor of Political Science at the University of Luxembourg.

The ECA traditionally seeks to reward outstanding academic research relevant to public

audit and its own work. Bettina Jakobsen explained that, for this fifth edition, the ECA

decided to enlarge the scope of the Award and invite researchers to present not only

masters’ or doctoral theses, but also peer-reviewed publications and books on the topic of

public auditing. This proved to be a good decision, as the number of submissions more than

doubled when compared to previous editions. The result of the deliberations of the selection

panel reflected this year’s change in approach. The two winning works were a Masters’ thesis

on auditing the European Development Fund, discussed by Andreea Hancu-Budui at the

University of Valencia (Spain) in 2018, and a book entitled ‘Evaluating evalutions,’ published

by Mita Marra, Professor at the University of Salerno (Italy) in 2017.

The Award-giving ceremony was organised around three parts: paying tribute to Jan O.

Karlsson, the presentation of the medals and certificates, and a keynote speech.

Paying tribute to Jan O. Karlsson

President Klaus-Heiner Lehne opened the ceremony in the presence of Jan O. Karlsson’s

family. He pointed out that the ECA Award is an important way by which our institution

demonstrates its commitment not only to being at the forefront of developments in our

profession, but also turning itself into a knowledge-based organisation.

Subsequently Eva Lindström, the ECA Member from Sweden, covered the various aspects of

Jan O. Karlsson’s rich personality, recalling the main steps of his public life. She recalled how

Jan O. Karlsson, being part of the tight circle around the former Swedish Prime Minister Olof

Palme, played an important role in the modernisation of the Swedish politics and society.

Eva Lindström met Jan O. Karlsson on a few occasions: ‘I remember a charming intellect,

his ease, sometimes a perhaps unorthodox attitude but always great commitment. At the

same time there was some insecurity, he could say the unexpected and surprising. Jan was

outspoken and direct. He called things by their name. This also contributed to making him

one of the more colourful Swedish politicians.’ As Eva Lindström recalled, ‘Mr Karlsson had

a brilliant ability to analyse and he could always pinpoint to the essentials in very complex

issues. He got right into discussions, contributing, exchanging views and pushing the

debate. He was not afraid of being heard or giving his opinion. Jan O. Karlsson's tenure was

not always smooth being a bit noisy and sometimes too open and outspoken. The former

Prime Minister Göran Persson referred to Mr. Karlsson as being very loyal and liked and also

happy, intelligent and always ‘on the move’, having a challenging and stimulating intellect.’

•

Jan Olov Karlsson (1 June 1939 – 19 September

2016)

was an eminent Swedish politician.

•

He studied economics, political science and history

at Stockholm University.

•

He served as a Member of the Court from 1 March

1995 to 31 December 2001, including a term as

President from 19 January 1999 until he left the

Court in 2001.

•

He was Minister for Development Cooperation,

Migration and Asylum Policy (2002-2003)

and acting Minister for Foreign Affairs (11

September-10 October 2003).

Jan O. Karlsson at the ECA (1995)

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E2018 ECA Award for Research into Public Sector Auditing 2018: a tribute to former

ECA President Jan O. Karlsson

continued

ECA Secretary-General Eduardo Ruiz García then outlined Jan O. Karlsson’s extraordinary

contribution to the ECA’s institutional identity. When Jan O. Karlsson joined the ECA in 1995

as the first Swedish Member, Eduardo Ruiz García was one of his closest collaborators. He

remembers how his management style surprised all staff: ‘Jan was a pleasant surprise for

all of us: informal and warm. He demonstrated that a good top manager is not a distant

and grave person; but someone open to staff, with a kind word or a thoughtful question

for everyone. Someone full of enthusiasm and supportive to the work and to the people

next to him.’ Jan O. Karlsson put forward several proposals to reform the Court. At that time,

some of them failed, as it was probably too early. Nevertheless, as Eduardo Ruiz Garcia

recalled, these attempts were valuable as they prepared the playground for making progress

in the future. Today, the ECA is based upon the system of audit chambers, the pooling of

auditors, a broad-ranging annual work programme, and a proactive communication policy:

foundations of these improvements were already present in Jan O. Karlsson’s programme

as ECA President. Or, as Eduardo Ruiz García put it: ‘Jan had this particular charisma. He

made an extra-premium contribution to shape the European Court of Auditors, to form our

professional and personal character.’ Mr Karlsson belonged to the few ‘individuals who are a

kind of ‘premium-contributors.’ ‘They own something else: an acute vision, an inexhaustible

positive energy, a skill to bring people together, a capacity to shape all around them.’”

Finally, Peder Karlsson, the eldest son of Jan O. Karlsson, offered personal insights on his

father and family background. In his heartfelt, emotional speech Peder Karlsson described

his father’s origins and the family in which he grew up. ‘My grandparents were socialists.

Socialism meant for my grandparents freedom: freedom from fascism, freedom from the

Nazi horror, freedom from a world where we separate people between high and low. It

meant the right for your children to get an education no matter of your cultural and social

background. Those were the values that my father grew up with.’

A strong passion for a united Europe was part

of it: ‘My father grew up in a family that had a

European perspective. He got the passion for

a united Europe that came with his mother’s

milk.’ Values such as equality, justice, freedom,

and a united Europe were deeply rooted in Jan

Karlsson’s life experience, ‘not just as a note in a

political pamphlet.’

Jan O. Karlsson found bright examples of

dedication and altruism in his very family:

‘My father’s biggest hero was probably his

uncle, Arne Karlsson, who worked for the

organisation Rädda Barnen,’ the Save the

Children international organisation in Austria

after the Second World War. Arne Karlsson died

on 11 June 1947 when, on the way to Berg (at

the Austrian border with the current Slovak

Republic), mistakenly turned and drove to a

Russian occupation base. The Russian soldier

saw the car and thought that there was a spy

Peder Karlsson, son of Jan O. Karlsson, speaking at the 2018

ECA Award ceremony

in the car. He began to shoot and killed Karlsson. Jan

Karlsson was eight years old when his uncle died.

As Peder Karlsson put it, Arne’s example and tragic

end ‘shaped the personality of my father, his passion for justice: why did this happen?

Why do people come apart in conflicts? What can we do to bring people closer together?

Somewhere deep inside him was the little eight-year-old boy who wished that his uncle

would come back.’

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E2018 ECA Award for Research into Public Sector Auditing 2018: a tribute to former

ECA President Jan O. Karlsson

continued

The two ECA Award winners

2018 ECA Award winners Professor Mita Marra

and Andreea Hancu Budui received the Award

certificates from ECA President Klaus-Heiner Lehne

The two ECA Award winners played the main role in the second part of the ceremony.

Igors Ludboržs, ECA Member from 2004 to 2016 and member of the selection panel,

explained on behalf of the selection panel the reasons of their choice.

Andreea Hancu-Budui has worked as Internal Auditor and Chief Financial Officer in

Valencia, and, at the same time, has pursued her academic research. She has recently

started a PhD in Public Finance and Audit of the Public Sector at the University of Valencia,

after discussing at the beginning of 2018 the Masters’ thesis

40 Years of auditing the

European Development Fund (1977-2017) - the European Court of Auditors’ methods and

results,

that allowed her to win the ECA Award.

Her thesis provides a global view on the evaluation and auditing of one of the most

representative financial instruments of the European Union. It elaborates on the shift

from financial and compliance audit to performance audit, and analyses the impact of

internationally accepted audit standards and practices and of enhanced methodologies

on the effectiveness and consistency of reporting. The author puts forward both practical

recommendations and methodologically interesting reflections on materiality, and

presents a well-argued case for a continued shift towards performance audit. She also

shows how the European Court of Auditors engages with other EU actors in the longer-

term development of this policy area .

It is worth noting that Andreea Hancu-Budui had benefitted from the European Court of

Auditors and European University Institute Postgraduate Research Grant on European

Public Finances, which allowed her to carry out her research at both the Court’s

headquarters and the EU Historical Archives in Florence.

Mita Marra is Professor of Public Policy and Public Administration at the University

of Salerno in Italy, and Visiting Professor of Comparative Public Policy at The George

Washington University. She is the author of the book

Evaluating evaluation

for which she

has received the 2018 ECA Award.

The publication provides a comprehensive and innovative analysis of the experience

of performance auditing and evaluation within Italy’s public sector over the past two

1 Mita Marra, Valutare la valutazione, Bologna, Il Mulino, 2017.

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E2018 ECA Award for Research into Public Sector Auditing 2018: a tribute to former

ECA President Jan O. Karlsson

continued

decades. It empirically draws on the author’s first-hand experience to demonstrate

the difficulties of reform in a national context and theoretically engages with broader

relevant scholarly literatures to demonstrate that it is possible to draw wider lessons.

The work critically engages with more general reform debates and supports forms of

evaluation centred on dialogue, experimentation and learning, thus making the analysis

relevant for a wider EU context.

Andreea Hancu-Budui and Professor Mita Marra received from President Lehne and the

chair and members of the selection panel the medals and award certificates. Following

the traditional photo session, the two winners had the opportunity to present to the

public the highlights of their research.

The keynote speech: Accountability, Embeddedness and the Crises of European

Integration

Robert Harmsen, Professor of Political science at the University of Luxembourg, captured

the attention of the audience with a highly topical speech on the crisis that the European

Union is facing now. Is this only one of the multiple crises in the European integration to

be managed as the previous ones? Or are we confronted with an ‘existential’ crisis of the

integration process itself, pointing to foundational challenges for the European Union?

Professor Harmsen went on analysing the declining legitimacy of the existing model of

EU integration. Is this just a question of enhancing accountability at the European level?

Some reforms and improvements in the accountability mechanisms may help, but will

not solve the problem of the declining legitimacy. According to Robert Harmsen, the

causes of the crisis are to be found at the systemic level.

In fact, there is a growing contradiction between democracy and governance. Typically,

the European integration is a system of governance, now endangered by the rise of

various ‘populisms’ both across Europe and the wider world. ‘Populism has essentially

become an illiberal democratic response to an undemocratic liberalism:’ although

very apodictic in the formulation, this quote shows a contradiction to be addressed.

Jan Zielonka, another author quoted by Professor Harmsen during his speech, put the

question in the following terms: ‘In the EU, technocrats dominate policy-making while

populists dominate politics.’ In fact, at the European level and elsewhere, the whole liberal

order is now under attack. What could be possible solutions? With reference to the next

EP elections, Professor Harmsen sees a risk of unhelpful or unhealthy polarisation to be

avoided between ‘liberals’ and ‘populists.’ It is crucial that the pro-European narrative,

which has been pretty much the same over decades, adapts to the country-specific

context, in order to situate the national debates in a wider, European context. Finally

and yet importantly, to address declining public trust in liberal regimes, a

responsive

accountability

is needed, aiming at responding efficiently and effectively to people’s

needs.

The ceremony ended with a short video, based on audio-visual records of the EU

institutions, remembering important moments in Jan O. Karlsson’s life as a Member and

President of our institution.

(Footnotes)

1 Also see the article

In memory of Jan O. Karlsson,

by Eduardo Ruiz García, published in the

December 2016 issue of the

ECA Journal.

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Reaching out

Drawing attention to the ECA’s ‘flagship’ product: the annual report

By Vincent Bourgeais, Directorate of the Presidency

On 4 October 2018 the ECA

published its 2017 annual

report on the EU budget.

This report is seen by many

as the ECA’s ‘flagship’ report,

presenting the EU auditors

independent assessment

of the state of the EU’s

financial management.

The more reasons to

disseminate the findings

as widely as possible.

Vincent Bourgeais is

communications officer at

the ECA. In his contribution,

he gives some insights

into the multiple activities

undertaken this year to

reach out to press and

media .

ECA President Klaus-Heiner Lehne presenting the annual report to journalists in Brussels

on 3 October 2018

Going beyond publication

The annual report provides our independent assessment of the state of the EU’s financial

management. Every year, we check the EU accounts and provide an audit opinion on two

questions: whether the accounts are accurate and reliable, and whether the EU budget was

spent according to the rules. Our findings are presented in our annual report and form the

basis for our statement of assurance, which we provide to the European Parliament and the

EU Council. Moreover, the annual report contains information on performance, value for

money and results achieved by EU’s policies and programmes.

Box 1:

Annual Report 2017 – Key findings

2017 EU accounts present ‘true and fair view’ (clean opinion).

Qualified opinion on regularity of payments:

- a significant part of the expenditure was not affected by a material level of error (set at 2%).

- the level of error in payments from the EU budget continues to decrease, estimated at 2.4 %

for 2017.

The EU budget continues to face significant pressure:

- outstanding budgetary commitments increase to a new high of €267 billion, due to a

combination of high commitments and low payments.

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Drawing attention to the ECA’s ‘flagship’ product: the annual report

continued

The annual report is seen by many as one of our ‘flagship’ products and, beyond any

doubt, its production is one of the key activities of the ECA during the year. But it is not

enough to just produce and publish. Once compiled, our annual report must be brought

to the attention of the other EU institutions, governments in Member States and regional

authorities. But also EU citizens have the right to know how their money is being spent

and what it achieves. That is where the ECA communications team comes into play.

Getting journalists interested

Media and press are indispensable partners to publicise our work as widely as possible.

They link us to the general public, but also to more targeted groups. That is, if we are able

to provide them a compelling and exclusive story. Dispatching a press release is clearly

not sufficient in this regard. They need to hear the information from us directly and they

want to get live answers to their questions on the key issues analysed in our reports.

This year we therefore piloted a new approach to our presentation to the press corps

in Brussels. In particular, we held several dedicated press briefings in Brussels on 3

October, about half a day before publication. In addition to a general press briefing by

ECA President Klaus-Heiner Lehne for journalists interested in financial affairs, we set

up a number of ‘country-specific’ briefings with a number of ECA Members speaking

to Brussels-based journalists from their countries. We also organised technical sector

briefings with ECA directors being available, geared for those that wanted to go deeper in

a particular area or topic.

ECA Member Alex Brenninkmeijer presenting the annual report to Dutch

journalists in Brussels

Change in publication approach

All these briefings were under embargo until the annual report was published on our

website. This year, and for the first time, we also decided to publish at 00.01 hour of 4

October (i.e. very early on the day of presenting the annual report to the EP), rather than

09.00 hour of that day (as in previous years). With this change in approach we wanted to

ensure our presence in the morning news at the very day of the first presentation of the

annual report to the European Parliament’s Budgetary Control Committee.

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Drawing attention to the ECA’s ‘flagship’ product: the annual report

continued

Box 2:

Presentations of the 2017 annual report to the European Parliament and Council

4 October 2018: Budgetary Control Committee of the European Parliament

24 October 2018: Plenary of the European Parliament

6 November 2018: Economic and Financial Affairs Council

Early markings of success

This new approach has early markings of success. Despite competing events on the

‘Brussels news’ agenda, a record number of close to 50 journalists attended our different

briefings. This in turn generated substantial media coverage, right from the early morning

hours on 4 October. Both in terms of number of articles and geographical spread across

Member States, our media coverage improved significantly this year. In the first ten days

following publication, around 250 articles (+43% compared with 2016) and 350 social

media posts (four times more than previous year) were generated. And this is not over.

Members of the Court are presenting the annual report also in the days, weeks and

months following its publication in their respective countries, to national or regional

parliaments, governments and other stakeholders, including the national press. This

should also contribute to bring our messages literally at the doorsteps of some half a

billion EU citizens.

Forward looking message

For many journalists, our annual report is all about level of error and ‘money wasted,’

perhaps understandably. This triggers catchy titles and sensational, easy-to-sell headlines.

But this year, we noted that the message is slowly shifting. Almost all headlines in the

main media outlets moved away from referring to the error rate, and also do not use the

word ‘waste’. Why?

First, it may be that our communication efforts over the past few years to explain that

errors are not necessarily waste have paid off. EU funds may still have had some positive

impact and provided some benefit, even though they were not spent in a fully regular

way.

Secondly, for the second year in a row, there was no ‘bad news’. The error rate was below

the materiality threshold for about half of EU spending and continued to fall in almost

all policy areas, the reason why we gave a qualified opinion on payments (rather than a

negative) for the second year in a row.

Finally, in the 2017 annual report, we not only looked back at the spending of the past,

but also looked forward to the spending in the future. This forward looking element was

emphasised in the President’s foreword to the 2017 annual report, and also taken up

in his presentation to the European Parliament on the morning of the 4 October 2018.

He warned that ‘EU should not make promises if it cannot

deliver’. President Lehne highlighted the fact that the EU has

to be realistic about what it can do with the money entrusted

to it, all the more so as the EU elections and next seven-year

budget cycle are practically just around the corner. This was

also the main message in our press release. The media echo

showed that it helped to convey the idea that our audit

findings also have implications for the future.

Much to build upon to make next year’s media strategy an

even bigger success. We will work on it.

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Reaching out

ECA congratulates Kosovo’s National Audit Office

on its 15th anniversary

By Mindaugas Pakštys, Private Office of Rimantas Šadžius, ECA Member

From left to right: Mr Driton Selmanaj, Chair of the Kosovan Parliament Committee for the

Oversight of Public Finances, Besnik Osmani, Auditor General of Kosovo, Seyit Ahmet Baş

President of the Turkish Court of Accounts and Rimantas Šadžius, ECA Member

High attendance at the 15th anniversary celebration

For its 15 anniversary celebration, the Kosovo National Audit Office (KNAO) had organised

a conference on 'The role and impact of the Supreme Audit Institutions in restoring public

trust in the public sector’ on 4 October 2018. Besides the ECA, a large number of senior

representatives of supreme audit institutions from the EU and beyond participated in this

conference: Bulgaria, Croatia, the Czech Republic, Finland, Sweden, Poland, but also Albania,

Montenegro, and the former Yugoslav Republic of Macedonia, Turkey, Saudi Arabia, as well

as the Welsh audit office. Also, representatives of international organisations operating

in Kosovo (World Bank, International Monetary Fund, Organisation for Security and

Cooperation in Europe Mission in Kosovo and others) attended the conference. This unique

blend of institutions and professions guaranteed a fruitful and productive discussion on

the main topic of the conference – the role of auditors in restoring public trust in the public

sector.

The conference started with opening remarks made by Besnik Osmani, Auditor General

of Kosovo, Seyit Ahmet Bas, President of the Turkish Court of Accounts and chair of the

EUROSAI Governing Board, and Driton Selmanaj, Chairperson of Parliamentary Committee

for the Oversight of Public Finances in Kosovo.

1 This designation is without prejudice on

status and is in line with UNSCR 1244 and the

International Court of Justice opinion on the

Kosovo declaration of independence.

Source: Kosovo National Audit Office

On 4 October 2018, Rimantas

Šadžius, ECA Member for

Institutional Relations, attended,

on behalf of the ECA, the 15th

anniversary of the Kosovo

National Audit Office (KNAO).

For the occasion, the KNAO had

organised a conference on ‘The

role and impact of the Supreme

Audit Institutions in restoring

public trust in the public sector.’

Mindaugas Pakštys, Head of the

Private Office of Rimantas Šadžius,

gives a brief overview.

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ECA congratulates Kosovo’s National Audit Office on its 15th anniversary

continued

Keynote speech by Rimantas Šadžius focussing on fostering trust

through independent audit

Rimantas Šadžius, ECA Member for Institutional Relations, started the first

part of the conference with a keynote speech on fostering trust through

independent audit. He referred to the ECA 2018-2020 Strategy in which the

ECA highlights its role in providing insight into what works and what does

not work in EU spending and other action. He remarked that by helping to

improve the way the EU functions and is understood, the ECA contributes to

fostering trust in the EU. One of the key challenges for the ECA, like any audit

institutions is to select the most relevant audit topics. He considered this to

be vital to ensure that the ECA’s strategic objectives are realised.

Rimantas Šadžius also pointed to a number of special reports the ECA has

published in the last few years in relation to EU spending in the Western

Balkans. He particularly highlighted the good cooperation that was

achieved in the parallel performance audit on Public Procurement in the

Western Balkans, which was facilitated by the Swedish National Audit Office

together with the ECA. This audit led to the publication of a synthesis report,

presenting key findings as well as the main conclusions of the national audit

reports from the six participating supreme audit institutions in the Western

Balkans.

Panel discussions

The second part of the conference was organised around two panel

discussions. The first discussion zoomed in on the topic ‘The impact of

Performance Auditing to better government’ and the second one focussed

on ‘SAI’s demonstrating ongoing relevance to the society, by conducting risk

based audits.’

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Reaching out

Reinforcing cooperation in the common interest: the European

Parliamentary Research Service visits the ECA

By Helena Piron Mäki-Korvela, Directorate of the Presidency

The European Parliamentary Research Service

(EPRS) provides Members of the European

Parliament, and where appropriate parliamentary

committees, with analysis of, and research on,

policy issues relating to the European Union’s

activities, in order to assist them in their work.

Their expertise is also increasingly used by other

interested audiences working on EU matters. On

9 October 2018, the Director-General of the EPRS,

Anthony Teasdale, and his management team

visited the ECA. Helena Piron, who deals with

institutional relations at the ECA, summarises the

main points discussed.

Anthony Teasdale

Regular exchange of views on matters of common interest between the ECA and the

EPRS take place since a couple of years. This year, the EPRS delegation led by its Director-

General Anthony Teasdale was welcomed by the ECA President Klaus-Heiner Lehne.

Martin Weber, Gerhard Ross and Philippe Froidure, ECA Directors, and representatives of

Audit Chambers informed the EPRS of the latest developments related to the ECA strategy

2018-20, the main messages from the recently published 2017 Annual Report (including

the pilot towards attestation engagement in Cohesion) and the planning of forthcoming

ECA reports and opinions for the next Multiannual Financial Framework in particular.

Anthony Teasdale underlined the strong interest of EPRS in intensifying the cooperation

with ECA, through the periodic exchanges such as this meeting, but also at the level

of specific subjects where teams on both sides could benefit from an exchange of

information. He noted that the work of the ECA is increasingly noted in the European

Parliament and that there is a pronounced awareness of the ECA reports published. He

also welcomed the choice of more topical audit subjects and better communication

around the audit reports published. The EPRS updates regularly its rolling checklist on the

ECA's special reports, cross-linking them on relevant work at the European Parliament, as

the ECA performance audit findings and recommendations are of specific interest to the

Parliament. These and other ECA products provide the EPRS useful material for briefing

the MEPs on specific issues related to EU spending or implementation of EU policies in the

EU or outside. Publication of an ECA report also regularly triggers questions related to the

audit by MEPs at the Parliament during the question time at the plenary.

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Reinforcing cooperation in the common interest: the European Parliamentary Research

Service visits the ECA

continued

EPRS colleagues also note with interest that the ECA is nowadays auditing a

wide variety of topics of public debate, such as the ECA special report 6/2017

on migration hotspots or special report 17/2017 on the Commission’s handling

of the Financial crisis in Greece, in addition to more traditional financial or

compliance audits.

Anthony Teasdale and his team informed the ECA management also of its

preparatory work related to the approaching elections and the arrangements

undertaken in view of briefing the next European Parliament, also in close

cooperation with the ECA. Finally, the meeting provided for an opportunity to

discuss the EU’s approach to ‘Better Regulation,’ using the recent special report

16/2018 on ex-post review of EU legislation, and the landscape review on

putting EU law into practice as examples.

This year’s meeting showed again the mutual interest of the EPRS and the ECA

in further intensifying cooperation on matters of common interest.

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Reaching out

Austrian presidency of the Council:

Federal Minister Josef Moser visits the ECA

By Arjen Lok, Private Office of Lazaros S. Lazarou, ECA Member

During the second half of 2018,

Austria holds the Presidency

of the Council. On 10 October

2018 Austrian Federal Minister

Josef Moser visited the ECA.

Arjen Lok, Head of the Private

Office of Lazaros Lazarou, ECA

Member, reports.

From left to right: Rimantas Šadžius, ECA Member; Josef Moser, Austrian Minister for Justice;

Lazaros Lazarou, ECA Member

On Wednesday 10 October 2018, Austrian Federal Minister for

Constitutional Affairs, Reforms, Deregulation and Justice, Dr Josef Moser,

visited the ECA in Luxembourg, also in the framework of Austria holding

the Presidency of the Council of the European Union during the second

half of 2018. He was welcomed by Lazaros Lazarou, ECA Member for

the Annual Report, and Rimantas Šadžius, ECA Member for Institutional

Relations.

Josef Moser is no stranger to the audit profession and to the ECA as the

EU’s external auditor. In fact, in his previous function he was the President

of the Austrian Supreme Audit Institution. In this position, he also acted

as Secretary-General of the International Organisation of Supreme Audit

Institutions (INTOSAI).

This professional background also became evident during the exchange

of views with ECA Members and Directors. The meeting dealt with a

broad variety of subjects relating to the ongoing Austrian Presidency,

but also to the role of Supreme Audit Institutions in general and the ECA

in particular. Josef Moser notably underlined the role the ECA plays in

ensuring that the EU’s financial resources are used to the best effect.

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FOCUS

ECA publications in October 2018

Opinion No 3/2018

Opinion No 3/2018 concerning the proposal for a Council

Regulation on the financial regulation applicable to the 11th

European Development Fund

The objective of this proposal is to align the financial rules of the EDF with those

applicable to the Union budget. The current Council Regulation on the financial

regulation applicable to the 11th European Development fund is structured as a set of

references to the Financial Regulation applicable to the general budget of the Union

(general financial regulation, GFR) excluding or supplementing provisions to cater for

EDF specificities.

Published on 1 October 2018

Click here for our report

2017 Annual Report

EU should not make promises if it cannot deliver

The EU should not generate expectations which cannot be achieved, the European Court

of Auditors (ECA) has warned in its annual report on the EU budget, published today.

In the Foreword to the report, the President of the ECA, Klaus-Heiner Lehne, points out

that the total EU budget is no more than about 1% of the gross national income of the

entire EU. For this reason, the EU has to be realistic about what it can do with the money

entrusted to it, particularly as the Union approaches its next seven-year Budget cycle.

“The conclusion is straightforward,” says Mr Lehne, “the EU should not make promises if it

cannot deliver”.

Click here for our report

Published on 4 October 2018

Audit in brief

2017 EU audit in brief

The ‘2017 EU audit in brief’ provides an overview of our 2017 annual reports, in which

we present our statement of assurance as to the reliability of the accounts and the

legality and regularity of the transactions underlying them. It also outlines our key

findings regarding revenue and the main areas of spending under the EU budget and

the European Development Fund, as well as findings relating to budgetary and financial

management, the use of performance information and follow-up of our previous

recommendations.

Published on 4 October 2018

Click here for our report

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FOCUS

ECA publications in October 2018

Opinion No 2/2018

The audit and accountability considerations concerning

the proposal of 6 December 2017 for the establishment of a

European Monetary Fund within the Union legal framework

The ESM was established in 2012. Its mission is to provide financial assistance to euro-

area countries experiencing or threatened by severe financing problems. This assistance

is granted only if it is proven necessary to safeguard the financial stability of the euro

area as a whole and of ESM Members10. The ESM was set up as an intergovernmental

organisation by means of a treaty between euro-area Member States.

Published on 8 October 2018

Click here for our report

Audit in brief

Audit of EU agencies in brief: Introducing the European Court of

Auditors’ 2017 annual report on EU agencies

This document summarises our audit results for the financial year 2017 for the 41EU

agencies and other Union bodies (agencies) under our mandate. A comprehensive

overview on the agencies set up by the European Union and the detailed results of our

annual agency audits can be found in our new Annual Report on the EU agencies for

the 2017 financial year.

Published on 9 October 2018

Click here for our report

Special Report

N° 26/2018

A series of delays in Customs IT systems: what went wrong?

In this audit we looked at whether the Customs 2020 programme, together with the

related customs legislation, are likely to deliver the IT systems necessary for improving

customs operations in the EU. We found that the implementation of these systems

suffered a series of delays so that some of them will not be available at the 2020

deadline set in the Union Customs Code. The delays were due to several factors, in

particular: changing project scope, insufficient resources allocated by the EU and

Member States, and a lengthy decision-making process due to the multi-layered

governance structure.

Click here for our report

Published on 10 October 2018

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FOCUS

ECA publications in October 2018

Opinion No 5/2018

The Commission´s proposal on the new system of Own Resources

of the European Union

A proposed reform of the way money is raised to fund the EU remains complex,

according to an Opinion published today by the European Court of Auditors. The

auditors identify a number of issues with the proposed reform and call for changes to

improve how it would operate.

Published on 11 October 2018

Click here for our report

Opinion No 4/2018

The proposal for a Directive of the European Parliament and of

the Council on the protection of persons reporting on breaches of

Union law

A proposed system to protect persons reporting breaches of EU law – known as

whistleblowers – could increase their legal rights in all Member States and give citizens

a central role in ensuring EU rules are applied in the context of their work, according to

a new Opinion from the European Court of Auditors. The auditors give the proposal a

warm welcome, although they note that in some cases it may be too complex to be fully

effective.

Click here for our report

Published on 15 October 2018

Work Programme

2019 Work Programme

Our 2019 Work Programme covers a broad range of issues that reflect the challenges the

EU currently faces. It addresses the key concerns of sustainable use of natural resources,

growth and inclusion, migration, security and global development, the single market,

and an accountable and efficient EU. We will continue to examine all these areas to

establish whether the EU is delivering what it has promised.

Click here for our report

Published on 16 October 2018

Special Report

N° 24/2018

Demonstrating carbon capture and storage and innovative

renewables at commercial scale in the EU: intended progress not

achieved in the past decade

EU action to support carbon capture and storage and innovative renewables has not

succeeded, according to a new report from the European Court of Auditors. Between

2008 and 2017, ambitious targets were set, but EU support for demonstration projects

achieved little in terms of projects delivered and results achieved, say the auditors. The

EU needs to adapt its new Innovation Fund to reach its objectives, they add.

Click here for our report

Published on 23 October 2018

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NEXT EDITION

For the next edition, the ECA Journal is going global!

Pack your suitcase and dive into the world of international cooperation

between public audit bodies, both at the European and the international

level. This international expedition will explore the variety of audit species

present in Europe and beyond and uncover their natural habitats through

contributions on how they reach out to cooperate.

Source: Pixabay

Gain insight in the numerous projects and platforms that bring

together auditors from all corners of the globe and find out how

Supreme Audit Institutions (SAIs) look beyond their borders to

promote accountability and good governance.

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100

ISSN 1831-449X

Strategic foresight: inspiring our thinking about the (un)

known (un) knowns

Engaging in foresight: a must for the ECA to be a global

leader in public auditing

The future of Europe: a collection of opportunities

Strategic Foresight at the U.S. Government

Accountability Office

The ECA's future institutional positioning: conditions

and options

EDITION

HIGHLIGHTS

COVER:

Is this Rodin's new thinker?

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